Five common challenges with running hospitality payroll (and how to overcome them)

Hospitality payroll is a crucial cog in the operational machine, so getting it right is vital.

Errors in processing payroll can cause significant challenges for hospitality businesses, with incorrect pay often resulting in demotivated staff members and causing avoidable tension. These errors can have further repercussions in terms of customer service delivery and staff retention.

According to the 2021 Global State of the Hospitality Industry Report, almost half of the survey respondents (48 per cent) identified hiring and staff retention as one of the biggest challenges facing the UK hospitality industry.

Keeping staff happy and motivated is crucial in any business, but the complexities surrounding hospitality payroll mean there’s even more room for error. Having a proactive and open approach to payroll solutions is crucial, and will go towards ensuring staff are happy, motivated, and ultimately, paid accurately and on time.

Hospitality payroll problems and solutions 

Payroll payment processing errors are time-consuming to rectify and can scale up to significant costs to your business if the issue isn’t handled quickly.

Here are some common challenges that come with running hospitality payroll…

  1. Running weekly and monthly payroll cycles 

Companies can choose the regularity with which they pay employees, but in hospitality payroll, where most staff members have an hourly rate, rather than a salary, more regular pay cycles are common.

Weekly pay periods are well-suited to employees who regularly work overtime and whose schedules can change week to week. These weekly changes can put pressure on payroll teams to make the adjustments according to that week’s schedule or the amount of overtime worked.

Monthly payroll is easier to calculate and has a lower processing cost than weekly payroll. For employees on an hourly rate, monthly pay cycles can be time-consuming to calculate, as the entire month’s overtime and changing schedules must be considered.

Payroll payments in 27 seconds

  1. Changes to National Minimum/Living Wage rates 

Payroll should always comply with HMRC and The Pensions Regulator. Non-compliance can result in fines and will damage the reputation of your hospitality business. There’s plenty to be considered for busy payroll teams, as they need to ensure that they are consistently monitoring the National Minimum Wage as well as tax considerations around pension and National Insurance contributions.

From April 2022, an increase to the National Living Wage (NLW) was announced, set to impact 2.5 million UK workers. The new minimum wage is now £9.50 per hour for those aged 23 and over – an increase of 59 pence or 6.6 per cent.

The National Minimum Wage (NMW) for those aged 21-22 has also increased by 9.8 per cent, from £8.36 per hour to £9.18.

For payroll teams, keeping well-informed of the latest changes is crucial, as setting the correct minimum wage rate is not enough to remain compliant.

The NLW/NMW is payable for the worker’s time spent working. It can be difficult to define what is classed as “working time”, with confusion around how commuting time, on-call time and the transition from breaks and night shifts are all applied.

Payroll teams should work with trained accountancy professionals to avoid falling foul of the rules. Non-compliance can result in reputational damage, thanks to the Government’s “naming and shaming” policy. Any errors can be costly to resolve, as they often culminate in significant financial penalties.

  1. Part-time, full time, and casual workers 

Hospitality work can be a great solution for workers who need a flexible job that can fit their daily lives.

This means there is often a lot of diversity in the make-up of your employee base, with a mixture of part-time, full time and casual workers being the typical set-up for many hospitality businesses, such as bars, cafes, and restaurants.

According to HMRC, part-time workers are entitled to the same treatment for:

  • Pay rates (including maternity/paternity/adoption leave and sick pay)
  • Pensions and benefits
  • Holiday entitlement
  • Training and development opportunities
  • Selection for promotion, transfer to other business areas and redundancy
  • Options for a career break

Seasonal support around busy periods such as Christmas is also common for hospitality businesses, and while they are beneficial for overall business operation, calculating and processing payments can be difficult for payroll teams.

With a wide range of staff roles and shift patterns to keep a record of, and a combination of permanent, part-time, casual and contract staff, it’s no mean feat for payroll teams to keep everything up to date and accurate.

  1. High staff turnover 

According to a recent YouGov survey, the annual staff retention in the UK hospitality industry is 70 per cent.

This high staff turnover (or low employee retention) can be caused by several factors, including:

  • Unsociable hours
  • Lack of flexibility
  • Lack of recognition and reward
  • Unhealthy working environments
  • Limited opportunities for growth

It is costly to recruit for, hire and train new staff and lack of employee retention costs the sector £275m per year. However, the complexities around setting up new employees on the payroll system, calculating their pay rates and considering individual tax and pension contributions are also time-consuming for payroll teams.

High staff turnover creates significant extra work for time-poor payroll and HR teams, risking an increase in admin errors which can be costly to rectify.

  1. Managing tips and gratuities 

More and more businesses are going cashless, meaning contactless and card payments are preferred in most hospitality venues; including when customers want to leave a tip.

The allocation of gratuities has garnered much media attention over the years, with many hospitality businesses being criticised for the unfair distribution of tips among staff members. With more and more tips being administered via card payment, the demand for clarity in the sector is higher than ever.

Businesses can opt to distribute gratuities by adding them to the general payroll, but this does mean that some of the tips can be tax-deductible, creating more admin time for payroll teams.

Tronc schemes are a special pay arrangement that allows hospitality and leisure businesses to fairly allocate staff tips, gratuities, and service charges. However, outsourcing these services can result in a reduction in overall “take-home” pay from tips, so be mindful of whether a Tronc scheme is the right choice for your business.

Faster Payments in hospitality payroll 

Real-time payments are payments that are made, settled, and cleared within seconds.

In our digital-first world, instant, faster payroll payments offer the quickest, most efficient option for transferring funds to employee bank accounts, and they bring significant benefits across the payroll process.

BACS payments, which remain the most common payroll system used by companies in the UK are an outdated solution that has strict cut-off times and can involve significant costs for processing errors. Delays or inaccuracies when processing employee pay will negatively impact their overall outlook and can lead to demotivated, unhappy employees.

IGsend from Income Group aims to bypass these complications, by streamlining the payroll payment process through the integration of real-time payments.

The platform allows payroll teams to make instant, real-time payments 24 hours a day, 365 days per year; responding to many of the challenges regularly faced by those responsible for hospitality payroll.

Real-time payments alleviate some of the pressure around payroll, allowing payroll teams to amend and adjust payments as regularly as needed and payments to be made in just two clicks of a button.

They can also lower costs and drive efficiencies across the payroll lifecycle, providing more time to prepare and submit up to date payroll files, with greater accuracy. This ultimately results in fewer inaccuracies and errors within the payroll run, reducing expensive post-payroll emergency payment fees.

How IGsend works…

  1. Click one: employer approves payroll, loads data, and funds and selects the payment time – all within the IGsend online platform
  2. Click two: employees are paid via real-time, instant payments, or on the date/time specified by the employer.

It’s that simple.

Find out how we can support you to streamline your payroll process, alleviate the stress on busy payroll teams and drive efficiencies in your hospitality business with IGsend by booking a free demo today.

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