Payroll is costing more than you think: five payroll issues impacting your business in 2026

Did you know your payroll is costing you more than you think?

No, this isn’t a brash sales tactic, but rather an unfortunate truth.

When most businesses think about payroll, they only consider costs like employee salaries, software and paying a payroll manager.

However, the reality is that payroll can be one of the most costly functions when operating inefficiently, with payroll issues silently plaguing a huge number of businesses.

Here, we’ve covered the five main payroll areas likely impacting your business.

Viewing payroll compliance as a fixed target

The stark reality is that payroll compliance is a constantly moving target.

Each April, we see a wave of rate shifts, forcing businesses to either rapidly adapt or face payroll issues.

What on the surface may seem like a scheduled update can quickly lead to non-compliance if not handled correctly.

Payroll non-compliance carries the risk of six-year HMRC arrears, penalties of up to 200% of the underpayment, Fair Work Agency investigation and public naming and shaming.

These potential costs dwarf the original error.

Sound troublesome? Well, from 2026, payroll compliance gets tougher, with the challenge dramatically increasing.

This year, payroll compliance has seen a landslide of additional legislative changes with the introduction of the Employment Rights Act 2025, with more updates coming in 2027.

Regular change: the April reset

Every April brings new National Minimum Wage (NMW)/National Living Wage (NLW) rates and statutory thresholds.

The margin for error is narrower than most employers realise.

The CIPP describes NMW as a complex area of legislation, noting that the most common breaches stem from incorrect apprentice rates and unpaid working time.

These small calculation errors can quickly compound across a workforce.

One CIPP case study details a UK charity facing potential liabilities of up to £500,000 from a single NMW investigation.

New change: Employment Rights Act 2025

As noted above, this April isn’t a routine update for payroll professionals.

The Employment Rights Act 2025 is being described as the biggest overhaul of UK employment law in a generation.

Headline changes impacting payroll compliance include:

• Statutory Sick Pay (SSP) is payable from day one of absence
• The removal of the Lower Earnings Limit for SSP
• Day-one rights to paternity and unpaid parental leave

Enforcement has also hardened.

As part of the Employment Rights Act, a new Fair Work Agency (FWA) was launched.

David Kisiaky, Senior Manager of Product Management, offered some valuable perspective on the FWA during our recent webinar: “The Fair Work Agency is being brought in to amalgamate compliance and policy agencies.

“Now, if the Fair Work Agency comes into your business, they’ll want to know more than what initially brought them in, so you need to have your records right.

“The requirements for keeping some records can go up to six years, plus the current tax year.

“That’s a lot of record-keeping.”

David’s advice underscores a critical point: the Fair Work Agency won’t be looking at a single issue in isolation.

The FWA will want to see the full picture:

• Your records
• Your processes
• Your compliance across the board

It’s essential that your documentation is robust and your processes are watertight.

Upcoming change: mandatory payrolling of benefits in kind (BiK)

Originally planned for April 2026, the mandatory payrolling of benefits in kind (BiK) is delayed until 6 April 2027.

Employers will be required to report most taxable benefits in kind and Class 1A National Insurance contributions in real time via payroll.

This change marks a major shift away from the traditional P11D/P11D(b) reporting cycle.

Now, while the change is delayed until 2027, we strongly advise employers to begin preparing, as payrolling benefits will create significant operational and cash‑flow changes.

Payroll isn’t on speaking terms with HR

The CIPP cites a lack of integration as a key challenge for payroll professionals, resulting in a fragmented landscape.

Disconnected systems, endless data entry and constant firefighting result in many payroll professionals facing an uphill battle.  

There’s a fundamental need for payroll to work better with HR. 

Disconnected systems are costing your business 

From a business perspective, a lack of payroll and HR integration scales badly.

More employees, more data, more work and more places a small mismatch can hide.

Payroll is left picking up the pieces, and in these scenarios, human error compounds:

• A pay rise entered in the HR system but not correctly reflected in payroll throws off pay, tax, NI and pension calculations in a single move.
• A leaver who isn’t removed continues to be paid.
• A job role change with a salary adjustment doesn’t get updated, and the employee is left shortchanged.
• New starter information arrives too late for the cut-off, creating retrospective corrections.

Efficient payroll processing isn’t possible when you’re acting as a manual bridge between two systems.

The longer you rely on manual workarounds, the more risk you carry.

How does HR and payroll software integration work?   

Software integration uses an Application Programming Interface (API) to connect your various systems.

Think of an API as a digital bridge that enables your systems to exchange information.

For example, an API enables your payroll system to access the employee attendance data from the HR platform, eliminating the need for manual input.  

Case study: The Fed regains control with integrated HR and payroll

The Federation of Jewish Services (The Fed) employs just under 400 people.

While the move to Staffology Payroll started as a payroll-only project, the integrated HR module quickly became part of their decision.

Claire Dawes, the Payroll Manager at The Fed, told us: “Staffology seemed to tick all those boxes for us, but the addition of the HR system was an added bonus.

“It looked a lot more flexible than what we had in place, and the reporting functionality really blew us away.

“The benefits that come with an integrated HR and payroll system just made sense for us.

“I used to dread senior management asking me for reports, and now I look forward to it.

“The reports are so flexible, and we can access whatever data we need with a click of a button.”

Spending more time on admin than payroll

A typical pay cycle runs through more than twenty distinct processes.

Most are repetitive, rule-based and high risk when handled manually.

Think updating tax codes, RTI submissions, payslip distribution and year-end processing.

Multiply this across twelve cycles a year, and you’re looking at over 200 manual touchpoints, each posing a risk.

Here, time gets lost, and payroll issues creep in.

The heart of payroll

Automating payroll processes isn’t about replacing the team.

Rather, automation removes the tasks that block you from focusing on more strategic work, such as managing financial wellbeing and leveraging data.

Use software automation to facilitate payroll process improvement, such as:

• Automate submissions to HMRC: automatically sending Full Payment Submissions (FPS) after each pay run, eliminating the risk of missed deadlines and keeping you RTI compliant without lifting a finger.  
• Auto-apply HMRC notices: tax code changes are automatically retrieved from HMRC and applied to employee records, ensuring calculations stay accurate and compliant.  
• Real-time pay calculations: instant calculations as you work, catching errors before they become problems and giving you the visibility you need without delay.  
• Occupational policies: configure your company’s sick pay, overtime or other unique policies just once, and the system then automatically applies them to every following pay run.  
• Payslip delivery: choose when and how payslips are shared with employees, whether that’s automatically upon finalisation or scheduled for a future date.   
• Seamless payment distribution: integrate with payment providers to transfer funds directly to employees, pension providers and HMRC without having to download files. 
• Autopilot for unchanged payrolls: for payrolls with no changes, payroll runs itself, completely hands-off.  

Case study: Boss Accountancy manages payroll from anywhere with Staffology Payroll

Elaine Trotman has been an IRIS customer for around 10 years.

Last year, the self-employed accountant embraced change and migrated to Staffology Payroll, helping ensure efficient payroll processing.  

Elaine told us: “For me, the biggest benefit is the time savings.

“Staffology automatically sends the reports to HMRC and posts the payslips, so I don’t have to worry about that.”

This automation not only saves time but also gives Elaine peace of mind that everything is handled properly.

You’re running a help desk

If staff are turning to you for every small query, you’re operating a help desk with payroll bolted on.

Of course, you want to be helpful and assist people when they have various questions.

However, there’s a fine line between supporting the workforce and losing countless hours answering the same questions over and over.

When you consider the amount of time you spend answering queries, the indirect cost quickly adds up.

Answering the same old questions

While employee communications are essential, constant digital disruption, like endless emails and messages, drains focus and wastes hundreds of hours annually.

Research found that 13% of UK employees contact their payroll team every month with a payslip query, and among under-35s, that figure increases to 28%.

Let me make a clear distinction: this is a documentation problem, not a payroll problem.

These types of questions are almost all self-serviceable when the right tools are in place.

Payroll self-service

Payroll self-service is a digital platform, either within the payroll or HR software, that enables staff to independently access crucial payroll documents, such as payslips and P60s.

Typically, a self-service platform is cloud-based and accessible via a mobile app or web browser, meaning staff can access it from any location.

Whether employees are office-based, hybrid or fully remote, via the self-service portal, they can log in and resolve their queries.

Viewing payroll errors in isolation

According to a survey of 4,248 UK PAYE employees, 25% of respondents have received an incorrect pay cheque, and of those, 78% were underpaid.

Additionally, 46% have experienced this happening on more than one occasion.

Not great.

To make matters worse, the cost of payroll issues is rarely the mistake itself.

Reputational damage

Treating errors as a discrete incident is a huge risk.

Research found that 49% of employees would start looking for a new job after just two payroll errors.

It’s no surprise when you consider financial wellbeing is a major stress for workers.

Our research found that the majority of respondents (69.76%) have relied on debt (cards, buy now pay later, overdrafts or loans) at least once in the past year to cover expenses before payday. 

Looking at the demographic insights, this becomes increasingly concerning, as the 25-34 age group is struggling even more, with 82.76% of them having used debt in the past year.  

As an employer, it’s your moral obligation to get payroll right, and errors are not an option.

High-risk data 

Perhaps the most disastrous error you can make is letting your data fall into the wrong hands.

Not only will this destroy employee trust, but the financial repercussions are massive.

Payroll holds some of the most sensitive personal data in the business: 

• National Insurance numbers 
• Bank details 
• Salary history 

As a result, payroll is often a high-value target for phishing, credential theft and salary diversion fraud. 

Under GDPR, the employer is the data controller and remains liable for breaches, even when payroll is outsourced.  

A personal data breach, posing a risk to individuals’ rights, must be reported to the ICO within 72 hours of the employer becoming aware of it.  

Penalties for serious breaches can reach the higher of £17.5 million or 4% of global annual turnover. 

To avoid this risk, seek software with features such as file encryption and password protection.

The future of payroll

Few other business functions interact so regularly and meaningfully with every employee. 

Done poorly, payroll can damage the employee experience and incur massive penalties. 

Done well, payroll builds trust.  

Done strategically, payroll strengthens culture, optimises costs and enables better decision-making. 

Given the right tools and guidance, payroll is stepping out of the back office and taking its rightful place as a strategic contributor to business success.  

Want to learn more about the strategic role payroll plays in 2026? Our recent guide examines the current state of the payroll industry, capturing our thoughts on where the profession is going and how you can become more strategic. 

Our payroll solutions are trusted to pay 1 in 6 of the UK working population.

For those looking to strengthen their payroll function, check out Staffology Payroll, our cloud payroll software built for growing UK businesses.