Missed payroll? Here’s how to get back on track

Missing the payroll run means staff don’t get paid on time, and no employer wants to be in that situation. But missed payroll happens for several reasons, including mistakes in the payroll process and financial pressures.

Luckily, there are a few things you can do to avoid this and never miss payroll again.

In this article, we cover:

Why it’s important to pay employees on time

Why do businesses miss payroll?

Avoid missing payroll

Stakeholder communication is critical

How to prevent further payroll issues

Why outsource payroll?

Using accountants and other advisers

Why it’s important to pay employees on time

If you don’t pay employees on time, they could lose trust and motivation and start looking to work elsewhere, bringing your operations to a juddering halt.

Since not paying staff on time can sour the relationship with employees and significantly damage a business, employers must do payroll correctly. Furthermore, the date on which you will pay employees must be specified in their contract, and this is law-binding. Failure to pay on time can mean a breach of contract, entitling employees to claim compensation.

Missing payroll could also create trouble with SARS because you might miss the deadline for submitting your Monthly Employer Declaration (EMP201) or payroll reports, which could incur penalties.

Why do businesses miss payroll?

Employers miss payroll deadlines for two main reasons:

  • Insufficient funds, and
  • Mistakes in the payroll process.

Insufficient funds

One of the biggest challenges for businesses struggling to pay employees comes from cash flow problems, including:

  • Late payments from clients or suppliers,
  • Buying new equipment without taking into account the need to pay salaries,
  • Spending money to fulfil an order, but sales don’t happen, and
  • A hefty tax bill that needs to be paid.

Mistakes in the payroll process

Payroll process mistakes happen because businesses underestimate what is involved with running a payroll function effectively, efficiently, and accurately. Furthermore, when unqualified or unsuitably trained staff run the payroll process, it increases the risk of non-compliance and further challenges down the line.

This has made a thorough understanding of payroll more critical than ever – but it is difficult for businesses to navigate on their own.

Avoid missing payroll

To avoid problems with payroll deadlines, always issue and collect invoices on time, and plan and forecast your cash flow. The sooner you identify problems, the longer you have to solve them.

Consider using a cash flow forecasting app, which allows you to update data regularly, and plan scenarios, for example, what would happen if you delayed a certain payment. If cash is still scarce, prioritise your most important suppliers, delay payments to others where possible, and ask landlords and SARS for payment extensions.

Then, look at your funding options, such as short-term loans, asking your bank to extend payment facilities, delaying payments, or restructuring your debt. Make sure you can repay any loans, or you may end up with even more financial problems in the future.

If late payments from clients are the problem, consider invoice financing, which includes factoring and discounting. These effectively lend you a percentage of your unpaid invoices immediately. Invoice financing comes with a fee, but it’s worth considering if it means paying staff on time.

Stakeholder communication is critical

What if none of these strategies work, and you’re still going to miss payroll?

If the issue is due to insufficient funds, inform your employees as soon as possible. The more information you provide, the better – so remain open and transparent at all times.

Keep your bank, suppliers, and other stakeholders such as SARS informed too. They tend to be more understanding if you keep them updated.

If the problem is a mistake in your payroll process, identify how it occurred and when it will be rectified, and assure employees it won’t happen again. Give them a timescale for payment. If you can’t, be open about it.

If the problem was due to cash flow, address the short- and long-term financial issues in your company without delay – for example, by cutting costs and increasing prices.

How to prevent further payroll issues

If you fail to pay your employees and become insolvent, they become creditors, and insolvency forces you to prioritise their interests over the company’s. Chat to a debt specialist or insolvency practitioner about your options.

If the problem is a process mistake, using payroll software and automating your processes will help. This will simplify your payroll duties and reduce manual entering, errors, and data duplication, which decreases the risk of future mistakes. Automation also makes the payroll process easier and brings expertise to the fingers of non-experts.

Errors involving manual calculations on complex, one-time payroll areas and missing information, such as new joiner details, tax code changes, or deductions, are significant causes of payroll not being processed on time. However, as more people use automated software or outsourced service providers, these issues are becoming less prevalent. Both are significantly less expensive and accessible to even the smallest business.

Why outsource payroll?

The best approach to avoiding payroll errors is to outsource the function to an external payroll provider. As well as using the latest payroll software, a reliable external payroll provider can manage your entire payroll process and ensure timely and accurate completion, no matter how complex your operations are.

Since payroll has changed so much over the last few years with frequent amendments to legislation, outsourcing also gives you peace of mind that dedicated experts are staying on top of payroll legislation and meeting reporting deadlines.

Many smaller businesses underestimate the skills and understanding required to manage payroll internally, making outsourcing a popular option. Furthermore, switching to an outsourced provider is generally quick, freeing up time and removing the worry of being late or getting it wrong.

Using accountants and other advisers

Financially stressed businesses should consider getting guidance from their accountant, bank manager, or other financial advisers.

These advisors can review any underlying issues and recommend additional actions you may require, such as increasing profitability, changing your business model, or revisiting the working capital setup.

Outsourcing to an accountant also assures accuracy of SARS returns, and if you appoint your accountant as your agent, they can file and contact SARS directly on your behalf.

Accountants can also aid business recovery because they can advise you of options available to you, like the Employment Tax Incentive.

Final thoughts on missed payroll

The prospect of missing payroll can be stressful for any business owner. However, following the procedures outlined here may make the process more bearable for you and your employees.

Most importantly, it may make your business and payroll processes more sustainable and resilient in the future.

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