Payroll FAQs | How to Improve the Payroll Process

4 Sep 2023

The payroll process can be a complex one, so to mark National Payroll Week 2023 (September 4 – 8), we’ve put together some handy tips and tricks to help you simplify things and give you plenty of ideas for improvement. 

What is payroll?

The term 'payroll' refers to a list of a company's employees and their earnings. However, it is more commonly linked to tracking an employee's wages over time.

Payroll is vital in businesses with employees. It is necessary to:

  • Determine employees' pay
  • Deduct the right tax, National Insurance and pensions from their earnings
  • Report pay details to HM Revenue and Customs (HMRC)
  • Pay your employees

What is PAYE?

PAYE stands for Pay As You Earn and is HMRC’s system to collect income tax and National Insurance from employment. 

Do I need to run a payroll?

Our advice here is simple: if you have any employees, then you need to set up payroll. If you don’t, your company will face some hefty fines and penalties imposed by HMRC.

While you will always need payroll, you may not need to set up a PAYE scheme if none of your employees receive weekly payments of £123 or above (2023/24), receive expenses and benefits, engage in additional employment elsewhere or receive pensions.

Nevertheless, the obligation to maintain comprehensive payroll records remains in effect. Find out more by visiting GOV.UK

What is your advice if I need to set up a payroll / PAYE scheme? 

While the setup of a payroll and PAYE scheme is relatively simple, it demands ongoing work to ensure accurate employee payment and PAYE handling.

You need to:

  1. Register your business as an employer with HMRC
  2. Choose a payroll system to run your payroll on
  3. Add your employee to HMRC's records via a Full Payment Submission (FPS). This requires key details such as the employee's full name, NI number, address, tax code, birthdate, start date, salary, student loan information, and their P45 if applicable.

Prime’s team of payroll experts can do all of this for you! Learn more about our payroll services. 

What is a payroll record?

In the UK, there are several key pieces of information you need to record on payroll for each employee.

These details help ensure accurate calculations, deductions, and compliance with employment regulations.

  • Employee personal information (Full name, address, date of birth, National Insurance number)
  • Employment details (Start date, job title or role, employment contract type, working hours)
  • What you pay your employees and the deductions you make
  • Reports you make to HMRC
  • Payments you make to HMRC
  • Employee leave and sickness absences
  • Tax code notices
  • Taxable expenses or benefits
  • Pension payments and deductions
  • Payroll Giving Scheme documents, including the agency contract and employee authorisation forms

Do employers need to provide a payslip?

Our advice here is simple – all employees on the payroll must be given a payslip and they must be provided on or before payday. This must contain:

  • Gross pay
  • Deductions, including tax, National Insurance and pension contributions
  • Net pay (take-home pay post-deductions)
  • In cases of variable pay based on hours worked, the hours worked must be specified

A handy payroll tip – your team’s payslips can be delivered using payroll software, either through printed copies or electronic distribution to employees.

How long do I need to keep payroll records?

Your records must show you have reported accurately, and you need to keep them for three years from the end of the tax year they relate to.

HMRC may check your records to make sure you are paying the right amount of tax. 

When do I pay HMRC?

Payment to HMRC is required by the 22nd of each month. If you opt for postal payment, it must be settled by the 19th.

The payment encompasses the tax and National Insurance amounts as reported to HMRC.

To keep track, you can access your HMRC online account. This allows you to review submitted reports, see how much you owe and facilitate payments. 

In-house payroll vs outsourcing

Our ideas for improvement around your payroll system come down to whether you use an outsourced payroll provider or handle payroll in-house. Which one you choose depends on various factors, including your business size, budget, complexity and resources. Here are some points to consider for both options:

Benefits of payroll outsourcing:

  • Expertise: Outsourced payroll providers specialise in managing payroll processes. They stay up-to-date with tax regulations and compliance requirements
  • Time-saving: Outsourcing payroll can free up your time and resources
  • Accuracy: Professional payroll providers are less likely to make errors, reducing the risk of penalties or miscalculations
  • Scalability: Providers can handle payroll for businesses of all sizes, adjusting their services as your business grows
  • Cost: While it involves a fee, outsourcing payroll might be cost-effective if considering the time and effort saved

Benefits of in-house payroll:

  • Control: Managing payroll in-house gives you direct control over the process
  • Cost: For smaller businesses, in-house processing might be cost-effective compared to outsourcing
  • Confidentiality: Sensitive employee information stays within your company
  • Customisation: In-house payroll systems can be tailored to your specific needs and integrated with existing systems
  • Flexibility: You can make real-time adjustments if there are last-minute changes

Consider the following when making a decision on your payroll:

  • How complex is your payroll? Do you have employees with varying compensation structures?
  • Do you have the time and resources to manage payroll effectively?
  • Are you confident in your understanding of PAYE, pension and employment laws?
  • Are you willing to invest in payroll software and stay updated with regulatory changes?
  • Can you afford potential penalties if errors are made?

Ultimately, the decision hinges on your business's unique circumstances. Many businesses find value in outsourcing payroll for its expertise and time-saving benefits, while others prefer the control and customisation of in-house processing.

Prime can take the stress and worry away! Find out how to outsource your payroll with our payroll corporate accountant services.

How to improve the payroll process

Running your payroll should be a straightforward procedure, shouldn’t it?

In reality, payroll can be difficult to manage. Errors can be costly and create emotional wear and tear for business owners.

Here are Prime’s top tips for improving your payroll process:

Keep on top of current and upcoming changes to payroll legislation

Globally, regulations are becoming more complex because of continual amendments. Even the most experienced payroll professionals turn to different resources to keep them up-to-date. Missing any important updates can have significant repercussions for a business.

Ensure you do are not misclassifying employees and contractors

Understanding worker classification and getting it right is important as it impacts income and employment tax. It also impacts whether the worker is entitled to applicable benefits and how their compensation should be reported.

Know your payroll deadlines

Deadlines are another complexity of payroll, specifically payment due dates. Depending on your business, there’s much more to consider than the traditional PAYE Year. It’s important to keep a calendar that outlines important dates, so nothing slips through the cracks.

Have good clear audit controls

If you’re not keeping up with local legislation and don’t have a system in place to regularly check for compliance, your business is vulnerable to finding inconsistencies when it’s too late. Businesses that implement processes to control compliance are more prepared in case of an audit and can catch costly inconsistencies in advance.

Keep accurate employee records

Making sure you have the correct personal information for each employee may seem obvious but it’s really important. Our advice is simple – on your payroll, attention to detail is key.

It’s an employer’s responsibility to maintain employee records accurately for the duration of their employment.

Check for data inaccuracies

Employers using outdated tools to manage payroll data need to spend more time double-checking figures because of the higher margin of human error. This can result in overpayments, underpayments and penalties.

Ensure employee payslips are secure and confidential

Some employers still produce printed payslips and leave them on their employees’ desks. If your business is still using printed payslips, consider upgrading to online payslips, where employees can securely access them.

Your employees’ personal information can change on a regular basis – and some of that information will likely affect your payroll.

Whether the change is down to promotion, salary increase or maternity or paternity leave, everything needs to be processed in the right way.

Ensure your payroll software isn’t incompatible, out of date or causing technical issues

It’s a real surprise to us that many HR and payroll teams are still backward in managing their processes. Our advice is simple – make sure your technology is up to date.

Many employers still use manual payroll management or outdated software. Older software is mostly non-integrated and incompatible.

If you use software or an online package and a technical glitch is preventing staff from being paid, you will want help at hand to save stress and embarrassment. Always check that online or telephone support is part of the deal and easily available.

Manage employee expectations

It’s vital you ensure your employees understand what they need to do in terms of remaining compliant.

One example of this is making sure they stick to your company’s expenses policy. Another is keeping overtime records accurate.

To help your employees, put procedures in place where you explain how to document expenses and overtime properly, so they don’t leave you exposed.

Put together a comprehensive set of policies, practices and cut off dates for all issues that affect the pay of your employees.

Understand workplace pensions

Workplace pensions were introduced in 2012. It doesn’t matter what type of business you run – even if you have just one employee, that makes you an employer and you have obligations under the pensions law.

Have you heard about automatic enrolment? Our advice to all business owners is to ensure you are aware of it. It simply means your business, as an employer, needs to put certain staff into a pension scheme, which you will make contributions towards.

Websites such as the Pensions Regulator have more information on workplace pensions.

Appreciate these payroll risk areas

There are several areas that are known to cause major headaches and errors when running your payroll:

  • Pensions and student loans
  • Statutory leave pay (maternity / paternity/ shared parental / adoption / parental bereavement)
  • Statutory sick pay
  • Share schemes
  • Termination payments
  • Payrolled benefits in Kind
  • Off-payroll workers
  • Construction Industry Scheme

There are many tips and tricks to consider here, but the most important is undoubtedly the need to have an expert to keep on top of the complexities of all payroll legislation. 

Book a meeting with us now

If you want to free yourself of the chore of doing payroll, then look no further.

To find out how Prime could make your life easier, simply contact us and we will arrange a no-obligation meeting with our senior payroll manager, Martin Farrell.

Alternatively, learn more about our corporate payroll services.