Payroll and pensions
Payroll calculated it. Finance paid the wages. Nobody checked the pension arrived.
Three numbers should agree every pay period. In a lot of businesses, nobody compares them, and the gap can run for months before anyone notices.
Here is a question worth asking in your own business this week.
Every pay period, three numbers should agree. The pension contribution your payroll calculated. The money that actually left your bank account. The money your pension provider says it received.
Who compares those three numbers?
In a lot of businesses the honest answer is nobody. Not through negligence. Through a gap that opens up quietly between two teams who have each done exactly what was asked of them.
How it looks when it goes wrong
A business changes payroll system. The implementation goes well enough. Payslips are right, people are paid, the project closes and everybody moves on.
Months later somebody leaves and asks a question about their pension. The answer does not add up. The scheme has had nothing since the system changed. Not a late submission. Nothing at all.
The instinct at that point is to find out who failed. It is usually an unsatisfying search, because everybody can show their work.
Payroll calculated the contributions correctly. They are on every payslip, deducted from every employee, posted to the accounts. You could reasonably argue payroll did its job.
Finance paid what it was asked to pay. Nobody sent an instruction to pay the pension scheme, so nobody paid the pension scheme.
The implementation team delivered a working payroll, which is what the project said. The integration to the scheme was never switched on, but it was not on anybody’s list, because it sat between two jobs rather than inside either of them.
Nobody did anything wrong in their own lane. The problem lived in the space between the lanes, and nothing in that space had an owner.
Why no system will rescue you
It is tempting to assume software should catch this. It will not, and it is worth understanding why.
If a pension integration is never switched on, nothing breaks. There is no error message. No failed submission sitting in a queue. No red flag on anybody’s dashboard. The payroll runs beautifully. It simply does not send anything, and no system is built to warn you that a thing which was never set up has not happened.
I spent sixteen years with HR and payroll software companies before running a bureau, so I will say this plainly rather than diplomatically: this is almost never a software fault. Modern payroll platforms handle pensions perfectly well when they are configured to. Problems that fail loudly get fixed in week one. Problems that fail silently run until somebody asks an unrelated question.
And there is a particular cruelty in this one. The absence of a payment is invisible in a way that a wrong payment never is. If you overpay the scheme, somebody notices. If you pay it nothing at all, the line simply is not there, and an absent line on a bank statement is the hardest thing in finance to spot.
Why it matters more than an administrative tidy up
Three reasons.
It is not your decision whether it gets reported. Pension providers report unpaid employer contributions to the Pensions Regulator. You do not get to find this quietly, fix it and say nothing. The scheme watches the money arrive and can see when it stops.
The enforcement ladder is real. The Regulator can issue an unpaid contributions notice requiring you to calculate and pay everything outstanding, with evidence, by a deadline. Ignore a statutory notice and a fixed penalty notice follows at £400. Keep ignoring it and an escalating penalty notice runs daily, between £50 and £10,000 a day depending on how many people you employ.
The money has to be found anyway. Every missed contribution is still owed. Six or nine months of employer contributions due at once is a cash flow event nobody budgeted for. The employee contributions are the harder conversation, because that money was already deducted from people’s pay.
In practice the penalties are not what hurt most. The backdated bill and the conversation with staff are.
The three numbers test
For the last pay period, write down three figures: what payroll calculated for pension, what left the bank, and what the provider’s own portal says it received. Then do the same for a period six months ago.
If you cannot produce all three without a hunt, that is the finding, and it matters more than whether they happened to match.
Then five more checks. None of them take long, and if your payroll system changed in the last two years, or you took on a new provider, or you implemented alongside an HR system, run them anyway.
Look for the payment, not the calculation
On the bank statement, is there a pension payment every pay period, and has there been one every period since your last system change? Payroll reports tell you what should have gone. Only the bank tells you what did.
Log in to the provider’s portal, not your payroll system
What date was their last submission received? It should line up with your last pay run.
Compare headcounts
The members the provider holds should bear a sensible relationship to the people on your payroll. A gap usually means new starters are not reaching the scheme.
Check somebody has actually been enrolled
If you have taken people on and nobody has been enrolled or re enrolled, assessment probably is not running, whatever the system says.
Name the owner
Write down who is responsible for the pension submission each period, and who checks that it landed. If that takes more than a few seconds, or if the answer is a job title rather than a person, you have found the gap. If the same person does both, you have found a different one.
This is a process question, not a payroll question
That is the part worth sitting with.
You can run this check, find everything is fine, and still have the problem, because a control that depends on nobody having made a mistake is not a control. The businesses this happens to are not careless. They are organised in the ordinary way, with payroll doing payroll and finance doing finance, and a handful of obligations that belong to neither.
Pension submissions are one. There are usually others.
So if you find something, fix it, and then ask the broader question. What else leaves this business every month that nobody reconciles? Which of our obligations sit between two teams rather than inside one? Who would notice if a payment that should happen every month simply stopped?
That is a morning’s work and it is almost always worth it.
LitE Payroll runs weekly and monthly payrolls for UK employers, with pension administration handled alongside the payroll rather than as a separate job somebody has to remember. A named payroll manager and a deputy sit on every account, and on larger system projects we work alongside a network of specialist consultants.
We also review payroll processes for businesses who run their own, which is often where this sort of thing surfaces. If you want a second pair of eyes, twenty minutes on the phone is usually enough for us to tell you whether you have a problem.