5 Signs Your SME Is Behind on Payroll Efficiency

Payroll processing is a critical aspect of any business, yet many fail to get it right. 25% of PAYE employees report having received incorrect pay from their employer.

For SMEs (small and medium-sized enterprises), the prospect of hiring a payroll specialist or switching to new software can feel intimidating and costly. This is why a whopping 74% of payroll professionals still lose at least 11 hours per week to outdated systems and inefficient workflows.

In this article, we discuss five of the most common reasons for payroll inefficiencies within small to medium-sized enterprises (SMEs). We will then explore the consequences this can have on the business's operations, providing some solutions to help simplify payroll processing.

5 Reasons for Payroll Inefficiencies

It's a relief to know that poor payroll processes, more common than many businesses would realise, can be identified and resolved. Once the cause of inefficiencies has been pinpointed, it becomes much easier to find a solution.

Here are five of the reasons why many businesses are struggling to manage their payroll:

Manual data entry

For businesses that still enter payroll data manually, the process becomes significantly more time-consuming. Having to physically record every timesheet, salary adjustment, or unpaid leave is an incredibly lengthy process that requires meticulous attention to detail.

Manual data entry is also prone to errors. A whopping 46% of the mistakes made to employees' wages arise from human error. These issues not only cause inconveniences for employees who receive an incorrect salary but also increase the already strenuous amount of time spent on administrative duties by the time spent resolving the issue.

Not integrating HR and payroll systems

46% of payroll professionals waste between 16 and 30 hours each week due to outdated technology, so there is no denying that your SME needs a reliable HR software.

There are numerous overlaps between HR and payroll systems, so failing to integrate the two can result in unnecessary complexity. If a business is required to manually update an employee record, having to do so across two different systems not only requires double the time but also increases the risk of mistakes being made.

Integrating the two systems ensures that any changes are updated across both systems, maintaining their accuracy and up-to-date status, ultimately resulting in an accurate payroll. This integration not only saves time but also reduces the risk of errors, making it a crucial step towards efficient payroll management.

Compliance breaches

It is the responsibility of a business to ensure that its payroll is carried out by tax regulations. Payroll is a complex procedure that requires an in-depth understanding of current laws, as well as staying up-to-date with any changes in regulations.

Without specialised training, an SME can unknowingly be breaching regulations. Mistakes, such as using incorrect tax deductions or submitting inaccurate hours, can lead to legal issues for the business.

Payroll staff should undergo extensive training to ensure they can accurately carry out the necessary processes by the law. Even after completing the initial training program, they must remain aware of any updates that have been made in the ever-evolving industry.

Lack of communication

Depending on the structure of a business, payroll may be a responsibility that is split across different departments. Typically, this would require input from employees in the HR department and the finance department. HR is responsible for onboarding new employees, managing leave, and updating salary changes, whereas the finance department is responsible for processing payments and handling tax matters.

If the communication between departments is weak, this can lead to delays or mistakes. If one department does not update the other on any changes, this can quickly result in confusion and payroll errors. Similarly, if one department creates a delay, this will have a knock-on effect that can result in missed deadlines.

Using outdated technology

For instance, the addition of AI (artificial intelligence) means that repetitive tasks, which once required hours of manual processing, can now be automated to not only save time but also improve accuracy. If your payroll system does not offer such automation, it may be considered outdated in today's landscape.

For small to medium-sized enterprises, failing to keep pace with the industry and using outdated technology can make it challenging for them to remain competitive in the current landscape. Adapting to modern times helps increase productivity and ensure the smooth operation of the business.

The Consequences of an Inefficient Payroll

An inefficient payroll can lead to significant consequences for an SME. Since being paid on time and accurately is a basic expectation of all employees, any mistakes can lead to resentment and potentially even cause personal financial struggles. If this occurs multiple times, it could result in a loss of trust and potentially lead to employee turnover.

If payroll is carried out without the expertise of a trained professional, it could also result in legal trouble. Incorrect tax deductions or employee benefits can result in fines or legal action against a business. In addition to being a significant challenge for an SME to overcome, this can have a damaging impact on the company's reputation. If word spreads, this could result in customers, or even employees, jumping ship to a competitor.

In addition to mistakes being made, inefficient payroll processing can result in significant costs for the company, including both time and money. Wasting hours each week using outdated software or manual processes diverts employees from their other duties, ultimately impacting the overall productivity of the business. Especially in the growth stage of an SME, this can make it difficult to expand the company and remain competitive. The costs of inefficiency can be substantial and should not be underestimated.

How to Enhance Payroll Processing

To avoid these potential payroll inefficiencies, an SME should invest in modern payroll software designed to automate repetitive tasks. Upgrading to a system that can integrate with any existing software to streamline processes and minimise the risk of human error can transform the way payroll is managed.

Once the new system is set up, establishing a clear payroll policy can provide a sense of control and stability. This will define how often employees are paid, how they are paid, how overtime and bonuses are calculated, and how employee benefits are administered.

Cementing these procedures and managing them through payroll software will help overcome the inefficiencies that an SME previously faced. This can bring a sense of relief, allowing them to focus on business growth instead.

About the author:

India Snowdon is the Content Strategy Lead at The Access Group. She creates engaging, insightful content for Access PeopleHR, helping HR managers navigate software and payroll challenges. Access PeopleHR offers HR software and payroll solutions that simplify people management and support growing businesses.

5 Signs That Your SME is Lagging in Delivering Payroll Efficiency

Struggling with payroll? Discover 5 signs your SME’s payroll process is lagging—and how to fix it with smarter tools, better systems, and fewer errors.