Students of risk tend to measure it in two ways; the severity of the consequences if things go wrong and the likelihood of things going wrong in the first place.
Nuclear war breaking out tomorrow would be a high impact – low probability risk. Having a paper cut in the next year would be low impact – high probability risk.
Slowly reversing into a bollard in a car park this evening would be, for most of us, a low-impact – low probability risk.
However, there is one more category of risk; high impact – high probability risks. The consequences of things going wrong are severe and the chances of things going wrong are high. These are the most dangerous risks.
Measuring risk in these ways is useful for assessing whether the costs of mitigating a particular risk are outweighed by the benefit of preventing it from coming to pass.
But risk is notoriously difficult to intuit, meaning it is all too easy to underestimate both the probability and severity of a particular risk.
This is especially the case for risks that don’t carry dramatic material consequences.
Impacts vary, probabilities vary and even the ease with which risks can be identified and assessed in the first place varies.
Most businesses repeatedly face one particular task that carries high impact – high probability risks. Things going wrong carries severe consequences and are likely to happen at some point.
But, too often, businesses fall into the trap of assuming it carries low impact – low probability risks. It isn’t obvious how easily things could go wrong and how serious the consequences could be. They assume that if things go wrong, they won’t have a severe impact and they’re unlikely to go wrong in any case.
This is a dangerous assumption that can stop you from taking the necessary precautions and leave you vulnerable to severe consequences, including substantial fines and damage to your reputation.
So what is this seemingly perilous task?
The answer is mundane; paying your staff.
If you are assessing the risks your business faces, then write ‘PAYROLL’ in capital letters at the top of the page and underline it.
Yes, paying every employee the right amount, with the correct deductions, every payday and without fail turns out to be a deceptively complex undertaking – even if your balance sheet is brimming with cash and you only have a handful of employees.
If you are not flush with cash or have more than a handful of employees, things become trickier still.
And, if things go wrong, the consequences can be devastating. They can even lead to the loss of your business.
Even if they don’t, they can damage your employment relationships, your reputation and even see you hauled in front of an employment tribunal.
Payroll is complicated, even where staff receive regular salaries, because the rules change frequently and those rules are often conditional on particular characteristics of different employees, including their ages and rates of pay, which also change frequently.
These factors combine to make constant payroll changes inevitable for even small employers.
Employers simply cannot afford to take a ‘set and forget’ approach to payroll.
Even paying the correct rates of the National Minimum Wage (NMW) and the National Living Wage (NLW) can be surprisingly challenging.
The Government published a list of the most common reasons for failing to pay the correct rate of the NMW and NLW recently.
These reasons hint at the complexity of the challenge facing employers simply to pay staff the right amount, which include:
- Deductions of payments that take pay below the minimum wage
- Unpaid working time takes pay below the minimum wage
- Failure to pay the correct rate to apprentices
- Failure to pay the uprated minimum wage
- Failure to correctly apply the accommodation offset
- Incorrect work type
- Worker status error
Several of these common errors demand both correct interpretation of the relevant legislation and correct interpretation of a worker’s circumstances, which in turn demand familiarity, not only with the legislation itself, but also with case law and precedents.
It is easy to see why hundreds of employers find themselves ‘named and shamed’ for minimum wage underpayments every year, despite having acted in good faith.
The need for interpretation of the legislation and different working arrangements is one reason why you cannot simply rely on payroll software alone, however useful and sophisticated it is.
Without significant leaps forward in the development of artificial intelligence, software cannot replace the interpretive skill of an experienced human being.
This all points to the steps employers can take to mitigate the risks that come with payroll.
They cannot usually avoid payroll altogether. It might be possible to outsource functions or to use agency staff, but these options bring their own challenges and are not necessarily available in every sector.
You could also devote large amounts of your time to administering your payroll meticulously and diligently. But this is unlikely to be a sensible use of your time when you are trying to run and grow a business.
This is where our professional payroll support comes into its own. Not only will our team of experienced payroll professionals take the administrative burden of payroll off your plate, they will also ensure compliance with the full array of legislative and contractual requirements you need to keep abreast of.
You are freed up to focus on more profitable work, safe in the knowledge that your payroll is compliant and taken care of for you.
We turn payroll from a high impact – high probability risk into a high impact – low probability risk. While the consequences of things going wrong can still be severe, they are vastly less likely to go wrong, and you enjoy the benefits of no longer having to deal with the administrative burden.
Contact us to find out more.