Everything you need to know about payroll, from getting set up to ensuring your system is compliant with legislation. Get the lowdown on the benefits of outsourcing your payroll, plus find out how to avoid common – and costly – payroll mistakes…
The term ‘payroll’ refers to the process of calculating an employee’s pay.
If you ask a business owner about their payroll costs, their answer will probably take into account the sum of all their employees’ earnings plus any costs that might be associated with paying them, such as Employers’ National Insurance Contributions (NICs) and the fees that might be charged by an external payroll services provider.
You need to ensure that any employee your business has is on the payroll right from the start – whether they are paid an annual salary, work on commission or are paid based on how many hours they’ve worked each month. Incentive schemes and bonuses must also be administered through your business’s payroll.
On a day to day basis, the payroll process has to be flexible and responsive to whatever changes take place on the ground. Members of staff may join or leave a business at any time, while other employees will be entitled to sick pay, maternity pay or might even request to take unpaid leave from work.
Real life events like these need to be reflected in a business’s payroll administration on an ongoing basis, to ensure that the people working for the company are paid the right amount at the right time.
Accuracy and efficiency are key where payroll is concerned. First and foremost it is vital for any business to have a clear idea of staff costs, or else it will prove impossible to build a full picture of the company’s financial health.
Equally, it’s important to ensure that staff are paid accurately and on time, ensuring that this is in accordance with the terms of their employment contracts. This is a practical point as well as a legal one, as there’s little that will harm staff morale more swiftly and seriously than failing to pay people on time!
Managing payroll involves staying fully apprised of when new staff members join a business, when others depart and when people’s circumstances change. For example, a payroll administrator would have to ensure that a staff member who was promoted or received a lower salary than usual for a set period (perhaps while on maternity leave) was paid accurately from the exact point at which they switched jobs or stopped work.
Crucially, payroll processing involves deducting PAYE (Pay As You Earn) income tax, NICs, pension contributions and student loan repayments from employees’ pay before they receive it. This means being aware of each employee’s current tax code, student loan liability and pension contributions, as well as making accurate calculations and keeping detailed records.
Most businesses with employees find that payroll administration is a full time job – and one that needs to be done by a qualified specialist.
If payroll is being done in-house, it’s best to use a computer software package that has been tested and is recognised by HM Revenue & Customs (HMRC). You can find out about these here: hmrc.gov.uk
However, many businesses choose to outsource their payroll as they find it a simpler, less stressful and more cost-effective option.
As an employer, your payroll responsibilities to HMRC will include:
Payroll legislation is subject to change, and it isn’t always easy to understand or stay fully informed of your obligations as an employer.
For example, the introduction of Auto Enrolment in 2012 has proved to be a challenge for some payroll administrators, who have not fully prepared for the change in the law. Employers throughout the country will receive specific staging dates – deadlines by which they must be compliant with the new regulations and making contributions to their employees’ pension fund. The process of getting ready for Auto Enrolment involves assessing all staff members to determine whether they are eligible or non-eligible job holders. Any business that fails to conduct this assessment will be non compliant with the law. At Numerus, we are ready to act as administrators of Auto Enrolment and have already advised our current clients of their staging plan, which, it is estimated, will take most businesses 18 months to fully prepare.
Failing to act when new rules come into force can prove very costly. The introduction of Real Time Information (RTI) payroll reporting, for instance, is the biggest change to the PAYE system since 1944 and has meant significant changes to reporting requirements for payroll administrators. Businesses who don’t comply with the new legislation in full by April 2014 will be fined by HMRC.
The complex and varied responsibilities that come with payroll administration are a key reason why many businesses choose to outsource administration to specialist payroll services providers – whose qualifications and industry expertise mean they can more easily ensure that processes are fully compliant.
Failing to pay HMRC what you owe on time is a sure way to increase the overall cost of your payroll.
Late PAYE and NIC contributions, for example, are subject to penalty charges – and you could also be charged interest on the amount you owe until your debt to HMRC is cleared. Likewise, businesses who make late RTI Full Payment Submissions (FPSs) and late Employer Payment Summaries (EPSs) could be fined up to £400 a time.
Being organised when administering payroll, and ensuring that you meet all HMRC deadlines, is vital.
It is crucial to keep full personal records on all the people who work for you, including their name and address, their gross and net pay, any deductions made to their pay, plus other details specified by HMRC.
HMRC also require that gross through to net calculations are kept, to show how your business’s payroll administrator has worked out what tax, NIC and student loan deductions have been made to employees’ pay. These calculations will also show any statutory payments that have been made to employees, such as Statutory Sick Pay (SSP) or Statutory Maternity Pay (SMP).
HMRC may also ask to see evidence of how you have made calculations, so it is vital to keep all documents and certificates that have been used during the payroll process – for example, forms pertaining to expenses and benefits such as the P9D or P11D, or documents showing employees’ entitlements to statutory sick pay (Fit Note received from a doctor) and statutory maternity pay (Mat B1 form received from a midwife).
If your payroll records are incomplete or insufficiently detailed, HMRC may choose to estimate how much your business owes – for example, in NICs – and charge you accordingly. This estimate will also include any interest you may be charged due to late payment.
To ensure you only pay HMRC what you really owe, make sure that the person in charge of your business’s payroll is on top of all record keeping tasks.
Even if your payroll records are highly detailed, failing to hold on to them for long enough could result in a penalty charge to your business of up to £3,000. You must be able to present HMRC with records from the current tax year, as well as for the previous six tax years – so be sure not to destroy or delete records too early.
Don’t forget that if you process your payroll electronically, a technical fault or computer virus could wipe out your records in moments.
Likewise, a fire or flood could put paper records beyond use. Always back up your payroll records so that, should the worst happen, you have copies to fall back on.
Administering payroll on a day to day basis can be complex and confusing. Employees’ circumstances are always changing, so their pay is unlikely to remain the same throughout their time with a business.
Forgetting to make amendments to your payroll for employees whose tax codes change, who switch jobs or who start claiming SSP or SMP could cause disruption and even end up costing your company money.
Cases of long term overpayment to employees are not unheard of, and – although rare – can prove very expensive and difficult to sort out.
Whatever payroll software you choose for your business, it will only be as good as the person using it.
Clever computer programmes may promise to deliver accurate, efficient payroll processing and reporting – but if they aren’t used correctly, errors will occur.
If you choose to operate payroll in house, be sure that whoever is in charge of your system is adequately trained. Alternatively, you may want to consider outsourcing.
Many companies choose to outsource their payroll processing, for both practical and financial reasons.
Providing an in house payroll administrator with training and continuing professional development opportunities can be costly – and there is always the risk that your in house specialist will choose to move on, leaving you in need of a replacement. Conversely, by working with a dedicated payroll services provider, you can rely on a consistent process.
Numerus Payroll Services operates a personalised payroll service at a fixed cost. We tailor payroll packages for each business we work with, so our clients will never face the hidden charges or unexpected fees some payroll companies levy – for example, when members of staff join or leave a business. You can find out more about outsourcing your payroll to Numerus here: payroll outsourcing
If you’re thinking of outsourcing your payroll to Numerus, you won’t even have to wait until the end of the financial year to do so. We can ensure a smooth transition from either an in house administrator or an external payroll services provider at any time. If you’re interested in working with us, get in touch to see how we can help you through the switching process.
Outsourcing payroll is a popular choice for many businesses, so it’s not surprising that there’s a host of specialist payroll services providers to choose from.
It’s important to select one that can offer your business the payroll solution you need at a price you can afford – and to find a payroll services provider that understands your individual requirements.
At Numerus, we are proud of the personalised service we provide for all our clients. We tailor the payroll solutions we offer to each business we work with, ensuring that what we deliver is right for their needs – whether they require paper or E-payslips, direct payment of employees or BACS payments, and electronic or paper reporting.
For more information on our services, visit our outsourcing page: payroll outsourcing
Whether you choose to operate your payroll internally or externally, it’s always important to keep an eye on costs.
Employing a qualified member of staff to manage your payroll will create an ongoing cost to your business. You’ll need to provide continuing professional development opportunities for an in house payroll administrator, as well as sick pay, holiday pay and maternity pay (if appropriate). Ultimately, you may also need to consider offering them the chance of promotion or a pay rise, or face the cost of recruiting a replacement should your in house payroll specialist choose to move on.
Some external payroll services providers offer solutions that look cost effective, but can ultimately prove expensive. Levying extra charges for events such as new staff joining a business, or processing the departure of a leaver, is not uncommon – and can cause payroll costs to spiral out of control unexpectedly.
Here at Numerus we believe that each business is different, so we don’t offer a one size fits all payroll service. Nor do we charge by the hour, or add supplementary fees to your bill when something in your payroll system has to change.
Instead, we like to keep our pricing simple. We work with each of our clients on an individual basis, building a personalised, fixed-price payroll package that will work for them.
To discuss your payroll needs and request a quotation, please contact us.