Avoiding Payroll Pitfalls: Lessons HR Teams Should Know
Payroll is one of the most sensitive and complex processes in any organization. Between legal compliance, technical systems, and human factors, even small mistakes can have major consequences.
In our joint Leapsome and KUNO webinar, we discussed the most common payroll pitfalls – issues our payroll specialists encounter regularly in their daily work. Based on numerous real-world cases, we showed how companies can avoid typical errors, identify risk areas, and strengthen communication to ensure a smooth and compliant payroll process.
1. Missing or Incomplete Information – the Root of Many Problems
A correct payroll run starts long before the actual payslip is created. The foundation is simple: all relevant employee data must be complete, accurate, and up to date.
In reality, we often see recurring issues:
- Missing or unsigned employment contracts
- Bonus or allowance agreements stored only in emails
- Expired student certificates for working students
- Late or incomplete sick notes
- For managing directors, it is often unclear whether they are also shareholders and to what extent they can influence the company – as this can have a direct impact on their social security obligations
Even a single missing document can prevent payroll teams from correctly assessing tax or contribution obligations. The result: miscalculations, potential fines, and significant back payments during audits.
Example:
If a company cannot provide a valid student certificate for a working student during a certain period, auditors will often assume full social-security liability – leading to high retroactive payments for both employer and employee contributions.
Best practices:
- Keep all HR and payroll documents in a secure, centralized digital system.
- Use HR software with reminders for expiring documents.
- Communicate any contractual changes or sick leave directly to payroll.
- When in doubt, document more – more really is more.
2. Poor Documentation – A Risk for Compliance and Trust
While missing data tends to cause immediate issues, poor documentation can create long-term risks, often discovered years later.
In Germany, employers must keep payroll records complete, traceable, and audit-ready. This includes:
- Working-time records
- Agreements on short-time work (Kurzarbeit), remote work, or bonuses
- Payroll statements and payslips
- Documentation of tax-free or lump-sum-taxed benefits
- Sick-leave data and responses from health insurers (eAU – electronic sick notes)
Incomplete documentation can cause serious financial consequences during tax or social-insurance audits (Lohnsteuer-/Sozialversicherungsprüfung), such as:
- Fines up to €30,000 (e.g., for Minimum-Wage violations)
- Back payments for up to four years
- Loss of trust among employees if payslips seem inconsistent
Beyond compliance, documentation is an internal trust factor. When payslips are unclear, employees lose confidence in HR – and in the company.
Recommendations:
- Go digital: store all files in an auditable HR system, not in emails or spreadsheets.
- Standardize processes with clear onboarding/offboarding checklists.
- Document every change immediately.
- Communicate transparently: employees should understand how payroll works.
3. Gifts, Vouchers & Benefits – Small Gestures, Big Impact
Good intentions can turn into tax problems. Many companies like to reward employees – with gifts, vouchers, or events. But in Germany, the rule is simple:
All benefits provided to employees are generally subject to payroll tax and social-security contributions.
This means every gift, voucher, or company event must be reviewed for tax obligations.
Examples:
- A €100 gift card costs the employer roughly €130 plus social contributions.
- A summer party can become taxable if allowances are exceeded.
- Onboarding gift boxes with branded items or tech are not automatically tax-free.
Common exemptions and thresholds:
- €50 per month for non-cash benefits (Sachbezug)
- €600 per year for certified health programs
- Job tickets (Deutschlandticket) are favored but must be documented
- Company events are tax-free below €110 per person with proper receipts
Pro tip:
- Keep managers and CEOs informed about tax implications of benefits.
- Always keep attendance lists and invoices for events.
- Budget realistically – a €100 gift usually costs more in total.
- Clarify tax handling with payroll before introducing new perks.
That way, gifts remain what they’re meant to be: appreciation, not an accounting issue.
4. Data Silos & Communication Gaps – When Systems Don’t Talk
Many payroll errors stem not from knowledge gaps, but from poor communication between HR, payroll, and finance.
Separate systems and unclear responsibilities lead to inconsistent data and payment errors.
Typical symptoms:
- Duplicate records that must be manually synced
- Incorrect or delayed payments
- Endless email chains and manual data entry
- Missing updates on bonuses or reimbursements
Better approach: one central source of truth. A unified, structured database saves time, avoids confusion, and ensures accuracy.
Recommended actions:
- Use an HR system (e.g. Leapsome) integrated with payroll and accounting tools.
- Define clear responsibilities – who updates what, by when.
- Use SEPA direct-debit mandates where useful (for health insurance payments, taxes or social insurance), but handle company pensions carefully.
- Let employees maintain their own master data – fewer errors, less admin work.
Please do:
- Maintain one #SingleSourceOfTruth
- Involve finance early
- Integrate systems instead of using spreadsheets
Please don’t:
- Duplicate folders
- Create unnecessary email traffic
- Forget to inform finance about major payroll transactions
Additional Payroll Pain Points
Beyond these four core topics, our webinar covered other common challenges:
eAU (Electronic Sick Notes)
Delays from health insurers often lead to overpayments. Automated eAU queries in HR systems help speed this up.
Test Payroll Runs
Always review test runs – even small parameter errors can cause wrong net pays. Apply a four-eyes principle before final approval.
Relocation Costs (Bundesumzugskostengesetz)
Not all moving expenses are tax-free. The Federal Relocation Expenses Act defines which costs may be reimbursed without tax liability – receipts must be properly documented.
Audits
German companies are audited roughly every four years (e.g. stating primary vs. secondary employment, hourly wage, bank details). Clean documentation saves time and stress.
Digital Support: Leapsome as an HR Partner
The webinar also demonstrated how modern HR systems like Leapsome help simplify payroll. Centralized data, transparent absence tracking, and automated reports reduce manual work and prevent data gaps. Especially for growing teams, digital support is key to maintaining compliance.
👉 Learn more: www.leapsome.com
Conclusion: The Next Audit Will Come
Payroll isn’t just about paying salaries – it’s about precision, collaboration, and trust.
Our four key takeaways:
- More is more – complete information prevents misunderstandings.
- The next audit will come – better to work cleanly now than fix later.
- Gifts, gifts, gifts – generosity yes, but keep it tax-compliant.
- Silos are bad, communication is better – align regularly with all stakeholders, especially finance.
Payroll may look routine, but it’s one of the most demanding HR disciplines. Structure, clarity, and smart tools make the difference.
👉 Your next steps
📌 Questions about payroll or HR? Contact us directly or book an appointment
📌 Learn more about Leapsome: www.leapsome.com
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