Hitting the mark on payroll is not easy, but it is extremely important. Sending accurate and timely salary payments is vital for keeping your employees happy, especially when many are living from paycheque to paycheque. What's more, efficient payroll management helps preserve your business reputation and save you from fines.
Recent headlines have emphasised the importance of this issue, as the government recently named, shamed, and fined over 200 companies for failing to pay their workers the minimum wage. Although the errors have since been resolved, the list included major names like WH Smith, Argos, and Marks & Spencer. According to the statement, 21% had paid the incorrect apprenticeship rate, 39% deducted pay incorrectly, and another 39% failed to pay workers correctly for their working time.
Most of the companies said that their violations were unintentional, which is understandable when the UK has one of the most complex payroll processes. Complicating factors include national minimum wage (NMW) legislation, pension auto-enrolment for certain employees, PAYE deductions, and the pressures of managing real-time information (RTI) reporting and ensuring that year-end reporting correlates correctly.
As a result, a survey by MHRGlobal found that close to 94% of businesses in Britain and Ireland encounter difficulties processing payroll, which could add up to as much as £150,000 lost every year. When huge corporations, who presumably have big payroll teams, fail to calculate and pay workers correctly, can small businesses avoid a similar fate?
Thankfully, the answer is yes, you can. Here are five tips to help you to stay within the law and your employees' expectations.
1. Categorise workers correctly
The first step is to check that every employee is legally permitted to work in the UK. You can shortcut the time consuming process of following up on references with a tool like RefNow that automates employee checks, including the right to work.
Then you'll need to determine the correct status of each worker, which might be more complicated than you expect. Unlike most countries, the UK has a category of "worker", as well as "employee" and "contractor". There's a lot of overlap between "worker" and "contractor", which can make it easy to confuse the two, especially since a worker might or might not be salaried.
"Workers" have specific rights like NMW, paid holiday time, and sometimes statutory rights, which contractors do not enjoy, so it's vital to get this right.
The government's employment status checker is a convenient tool here. And if you employ apprentices, you'll need to remember that as of their second year of apprenticeship, they receive the NMW.
2. Understand UK pay requirements
Like we said above, UK payroll regulations can be very complicated. NMW legislation alone can be a major headache because amounts payable change as the workers get older. It's not always easy to define "working time", and you're required to pay workers by a specific date each month.
WH Smith claimed that its breach of NMW requirements occurred only because it missed the deadline for reimbursing workers for buying specific items of uniform clothing.
Pensions are another hurdle. Certain employees have the right to auto-enrolment, so you'll need to identify them and complete the process.
Employers also have to grapple with statutory pay rights, including maternity pay, sick pay, paternal leave, paid holiday, and more. In these situations, you can always turn to a payroll service provider like Moorepay, to help you navigate UK payroll requirements.
3. Automate manual processes
Manual processes are error-prone, as well as time-consuming and tedious for employees, but 72% of companies still use them. Payroll automation software like Pento can take over tasks like syncing data related to employee details, hours worked, bonuses, overtime, and more, to help prevent manual errors.
Pento's support team is made up of CIPP-accredited experts, too, so you can always get help making sure that your automated processes are based on legally compliant timetables and designations.
The right software can also automate processes like calculating compensation to allow for deductions that affect take-home pay, and RTI reporting to the HMRC on the day before or day of payments being issued, and year-end reporting to reconcile payroll information for that year.
Automating payroll processing can include initiating payments so that payments are never delayed because someone forgot, payday falls on a bank holiday, or the employee responsible was away. The risk is real; Marks & Spencer said that its NMW breach came about because of a technical issue that led to employees not being paid within the required time periods.
4. Keep records carefully
Good record-keeping is absolutely crucial, but that isn't always straightforward.
You need to track data like when an employee gets promoted, moves into the next age-related NMW pay bracket, or becomes eligible for pensions auto-enrolment or increased contributions.
Records should include hours worked, including travel time, mandatory training time, and trial shifts, which are considered "working time" for NMW purposes; and what's been deducted from their take-home pay and for what reason. UK companies are legally required to keep these records for three years.
When businesses get payroll wrong, it's often because they made mistakes in their calculations, but poor record-keeping is frequently the original cause of those mistakes. Tools like Factorial that streamline tracking and recording leave, holidays, overtime, training time, and more can help ease the pressure.
5. Involve your employees
Payroll can be a lot less hassle when you get your employees involved.
It's a good idea to offer an employee portal that they can use to check up on their past and expected pay, verify their payment details, confirm the number of shifts worked this month, etc.
Encourage employees to use a self-service portal like Workday to review their upcoming pay, hours worked, recent leave, and more, to check that it's correct and fix it if it's not.
It's also a good idea to use your employee portal to ask workers what could be improved in your payroll system. You might get some suggestions you never thought of.
Payroll compliance doesn't have to be a headache
There's no getting away from the UK's complex payroll requirements, but there are ways that you can relieve the burden. Automating processes with the right tools can help cut the risk of errors, ensure that pay arrives on time, and protect you from the shame and pain of fines for non-compliance.
Copyright 2023. Featured post made possible by Jeff Broth.