The Impact of Payroll Mistakes | Global Payroll Report 2024

Whether it’s a late payment or an insufficient paycheck, many of us have likely encountered a payroll mistake at some point in our careers. But what impact do payroll errors have on those who experience them?

A payroll issue is often more than a minor inconvenience for an employee — it can have a very real impact on their life, affecting bill payments, family plans, and even their ability to socialise. Beyond from the financial impact, payroll mistakes can have an equally detrimental effect on an employee’s morale and mental health.

As Jonathan Goldsmith, Remote’s VP of Payroll, explains, Pay is not about work, it’s about life. Getting paid incorrectly can stop you from being able to take care of your family and yourself. It might affect your holiday plans, or mean you’re unable to save for future things such as school fees or even a new home.

Payroll issues refer to any kind of problem or discrepancy in the payroll process, which might include errors in pay, misclassifications, or discrepancies in subsidies in tax.

At Remote, we see payroll as more than a basic administrative function — it’s an essential arm of HR for all businesses and crucial in fostering trust, preserving morale, and driving motivation. Mistakes and a general lack of transparency around payroll can introduce uncertainty, anxiety, and damage relationships between employers and their workforces.

To understand the state of global payroll and gauge the tangible impact payroll issues can have on employees across the globe, we surveyed more than 2,500 professionals across several demographics and sectors in the UK, US, and Germany, as well as more than 1,300 HR decision-makers in charge of payroll.

How do payroll issues really affect employers and their employees? Let’s dive into the data.

Highlighting the paramount importance of accuracy and transparency, our survey demonstrates the significant impact payroll errors can have on both employees and their employers. Inefficiencies in payroll can not only have a detrimental impact on relationships but can also introduce significant operational bottlenecks.

"Payroll is a core HR function that should be viewed as inherently people-centric. This is crucial in avoiding an erosion of trust and helping businesses maintain a strong reputation and standing among employees." - Jonathan Goldsmith, VP of Payroll at Remote

Read the full report and learn how to reduce payroll errors

What are the consequences of payroll mistakes? Download our State of Payroll Report to discover the impact of payroll errors on employees and learn how to minimise your risk.

Payroll errors can affect employee-employer relations

Another significant impact of payroll mistakes is a potential breakdown in the relationship between the employer and the employee, with a payroll discrepancy often leading to a loss of trust. While more than half of employees say their relationship with their employer stayed the same following a payroll issue, 42% indicated some kind of deterioration.

However, the same can be said about the potential risk of damage to a company’s reputation if a payroll mistake is made. When asked what they’d do if a payroll error resulted in their being underpaid, over a fifth of employees (21%) said they’d either make a complaint or post about it on social media, which could have wider repercussions for the business.

There are functions within a company like payroll that work for the employee, and they need to remember that and own the impact. The after-effects of poorly running payroll to a business are factors like retention, sentiment, and motivation — those are really big things. - Jonathan Goldsmith, VP of Payroll at Remote

Our survey of HR decision-makers highlights a potential disconnect here, with almost a quarter (24%) of respondents seeing faster payments as the main function they’d like a payroll solution to provide. A reduction in errors (21%) is considered the sixth-most desired function, indicating that employers are perhaps not fully aware of the full impact payroll mistakes can have compared to other factors.

Overpayments pose a risk to businesses

While the most common payroll issue is underpayment, in around 10% of instances of pay-related errors, the employee is paid too much. This, of course, can pose a significant financial risk to businesses, particularly if these mistakes regularly go unnoticed and are allowed to happen frequently.

Our survey asked employees what they would do if a payroll mistake resulted in them being overpaid, up to several different amounts. While in all situations most respondents said they’d tell their employer (on average, 61% would do so regardless of the overpayment amount), 5% of employees would spend the money without consideration.

More than 1 in 10 (11%) said they wouldn’t notice an overpayment of $100 or under, with that percentage decreasing the higher the amount. This is impacted by the fact that over a third (34%) of employees don’t check their paychecks every time they receive one. While far from a malicious act on an employee’s behalf, this nonetheless highlights the hidden financial risk to businesses of frequently undiscovered mistakes.

There can be a misconception among employees that an overpayment in your pay packet amounts to free money, says Jonathan Goldsmith. But employers have a legal right to reclaim any wages that have been overpaid. Businesses must be quick to identify and rectify these mistakes, meaning payroll vigilance and accuracy are key.

Payroll insights across countries and sectors

Our leading study into the state of global payroll in 2024 considers the views of employees and HR decision-makers in multiple countries and across a range of industries, revealing how those most affected feel about payroll operations in the current landscape.

We surveyed 2,539 working professionals in the United Kingdom, Germany, and the United States.
We also gathered the views of 1,352 HR decision-makers responsible for payroll in the United Kingdom, Germany, France, the Netherlands, and the United States.

The survey uncovers important insights such as the frequency of payroll mistakes, the impact these errors have on employees, and what employers are doing to mitigate them.

Read the full report and learn how to reduce payroll errors

What are the consequences of payroll mistakes? Download our State of Payroll Report to discover the impact of payroll errors on employees and learn how to minimise your risk.

Employers must treat payroll as more than a back-office function

Our study shines a light on the very real impact of not getting payroll right. The financial repercussions for employees can be significant — with consequences including late rent or bill payments, for example — but employers must realise that the emotional impact of a serious payroll discrepancy can be felt even more keenly.

Of course, the two are often tied together — the prospect of missing a scheduled payment or not being able to afford essential provisions is invariably a cause of stress and anxiety, particularly for younger generations who may have less financial stability and more family commitments. But this doesn’t negate the fact that late payment of wages can have a damaging effect on employees’ mental health.

This is why, as Jonathan Goldsmith outlines, employers must recognise that payroll is more than just an administrative function:

Payroll is a highly strategic asset. If you’re treating payroll as a back office function, you’re already behind the times. Payroll is a mechanism to help recruit employees and give them a good experience. If you don’t provide them insight into what they’re getting paid, how they’re getting paid, and why they're getting paid that way, you’re doing a disservice to your employees.

We’ve highlighted the erosion of trust as a potential consequence of a payroll error (with more than 15% of employees saying a payroll issue had reduced their trust in their employer), but the impact on businesses can be wide-ranging: an ineffective and error-prone payroll operation can decrease employee motivation, damage productivity, and even affect a company’s ability to attract and retain high-calibre talent.

A lot of companies say, ‘We pay our employees well’, but this doesn’t matter if they’re not paying them correctly at the end of the day. That’s an important thing to remember, and I think it gets forgotten a lot.

Want to find out more about what employees and HR decision-makers think about the importance of payroll? Download the full State of Payroll Report for extensive insights into the common reasons for payroll issues, the impact on employees and business operations, and the benefits of outsourcing payroll for organisations.