Poor HR practices don’t just damage company culture, they can result in serious financial consequences. Whether it’s payroll errors, misclassified contractors, or improper onboarding, many businesses underestimate just how tightly HR and finance are intertwined. And when communication between these functions breaks down, the cost can be substantial.
One of the most common issues arises when HR and payroll are out of sync. Salary changes, bonuses, and adjustments to hours often happen without a formal approval trail or proper communication to the payroll team. These gaps can result in overpayments, underpayments, or even breaches of contract. The solution? Clear, documented processes that connect HR decisions directly with payroll deadlines — ensuring everything is approved, tracked, and actioned in time.
Right-to-work checks are another area where many businesses fall short. It’s not enough to simply collect an employee’s ID — the correct documentation must be verified, recorded, and stored before they begin work. Failure to do so can lead to fines of up to £20,000 per worker, not to mention the reputational risk of Home Office investigations. Speeding up onboarding should never come at the expense of legal compliance.
Contractor arrangements also pose a significant risk. Many businesses engage workers on a freelance or self-employed basis in an attempt to reduce costs, but if those individuals are managed like employees — given fixed hours, company equipment, performance targets, or line management — it can trigger IR35 scrutiny. In such cases, the company may be liable for unpaid tax, National Insurance, and penalties. Getting professional advice on employment status is no longer a luxury; it’s essential.
Even well-intentioned employee rewards can become financial traps. Gifts such as spa days, iPhones, or holiday vouchers might seem like harmless perks, but they can fall under P11D reporting requirements if they exceed HMRC’s “trivial benefit” threshold. If these benefits aren’t declared properly, employers can find themselves footing an unexpected tax bill. Before offering incentives, it’s wise to confirm whether they’re taxable and ensure everything is correctly reported.
Another growing concern for businesses is the use of AI in recruitment. While automated tools can help sift through CVs or match candidates to roles, they carry risks around bias, fairness, and GDPR compliance. Relying solely on AI to make hiring decisions could expose employers to claims of discrimination or unfair treatment — and as employment law evolves, the legal landscape around AI in HR is only becoming more complex.
Workplace inclusion is also under increasing scrutiny. Supporting neurodiverse employees — such as those with autism, ADHD, or dyslexia — is now a legal obligation, not just a best practice. Failing to make reasonable adjustments can lead to tribunal claims. These adjustments don’t have to be costly or complex; sometimes it’s as simple as offering alternative communication styles, providing visual tools, or assigning a support contact during onboarding.
Throughout all of this, one message is clear: documentation is everything. From contracts and onboarding forms to disciplinary records and performance reviews, every HR-related interaction should be formally recorded. In the event of a dispute or data access request, the ability to produce clear, objective records can be the difference between a quick resolution and a costly tribunal.
Ultimately, HR is about far more than employee wellbeing. It’s a core part of business risk management — one that directly impacts profitability. When HR and finance operate in silos, it creates gaps that can lead to legal action, penalties, or missed reporting obligations. But with the right systems, consistent communication, and external support where needed, those risks can be significantly reduced.
At Chadwick Accountants, we work closely with business owners to ensure their people processes align with their financial strategy. From payroll and benefits to IR35 compliance and reporting, we help you stay protected, proactive, and profitable.
Need help getting your HR and finance in sync? Contact us today [email protected] or call us on 01789 773182
To learn more, listen to our recent episode of the FFS Podcast: The HR Horror Files - For Finances Sake (FFS) | Podcast on Spotify
