3.1 Effective Payroll Makes a Business Operate
Correctly and Smoothly

We stated
in our first module that you need to pay your employees correctly and at the
right time.

An
effective payroll system will keep staff happy and protect you legally. HMRC
will not accept excuses when it comes to non-payment of tax. Tax evasion, whether
on purpose or by accident, is a crime.

An
effective payroll system means your business will run efficiently, and all
records are correctly kept i.e. in the correct place, secure and confidential;
available only to those authorised to access them. Also, having dedicated staff
to deal with payroll means that any queries can be dealt with by someone who
fully understands the system and its working.

It is important to understand that
confidentiality plays a huge part in payroll, as storing information is equally
vital.

For
instance - an employee has a query regarding their pay. Perhaps they do not
recognise or understand a certain deduction, or they believe a payment is
missing; such as accrued overtime. How do you deal with this type of problem?;
You manage this by having staff in place who understand the system and who will
be able to answer the questions fully and quickly, rectifying any mistakes and
thus keeping your employee happy. On top of this, an effective system means any
information you need to look at can be readily accessed without delay.

For example, HMRC could perform a spot check at any time.

This is
something done occasionally and randomly. If this occurs, you need to be able
to provide up-to-date and accurate records in a fast manner. If your system is
not effective and you do not understand it, or do not know where your records
are kept, you could be in a difficult situation. It is not a risk worth taking,
as ignorance of the facts will not save you from trouble with HMRC.

An
effective payroll system eliminates these problems.

3.2 What Should an Effective Payroll System
Include?

This module is a basic overview of UK payroll software packages and what
you need to look for - again, this is reiteration before we move on to the
finer and more detailed points of each facet of your payroll system, including
the anomalies that occasionally occur and how to deal with them.

If you do
not know what your payroll system needs to include, you will not be able to run
it effectively, and it will not meet your needs, your employees' needs, or the
needs of HMRC.

Let's review exactly what your payroll system needs to include and the
functions it needs to fulfil.

·     It needs to be easily accessible
for the designated users and secure i.e. allowing access to only those
authorised. Password protection is a good idea; however, only those who need to
know the password should have access. Change this password regularly in line
with a stringent security policy.

·      It needs to allow clear channels of
communication between employees, the employer and the person who manages and
runs the software package. If you outsource your payroll needs, e.g. to an
accountant or bookkeeper, then you need to put in place a system which allows
information to be effectively communicated.

Equally, within a large organisation,
it is important to reiterate to managers the importance of passing on employee
information, such as new starters, leavers, overtime accrual etc. Having set
dates for information updates before cut off for pay each
month is recommended, and will instil a sense of urgency for managers.

·     Your payroll system is not wholly
about the actual inputting of information into the software system, it is about
the running of the payroll in its entirety; from communication to issuing
payslips, to dealing with queries quickly and fully, and recordkeeping. Having
a point of contact for queries is a good idea as this allows employees to
discuss problems quickly and facilitate a speedy resolution, as well as
allowing managers to discuss queries with a specified person.

·    It needs to ensure the safe
storage of confidential employee information pertaining to income tax and
National Insurance deductions, tax code notices, taxable benefits, reports,
payments and any other information deemed necessary to maintain payroll
records. This may be computerised or it may be manual/paper-based; however,
both systems would require a backup function and both be securely stored.

·      It should have a backup
plan in place in the event of employee sickness. If your payroll person is
unable to work for any reason, you need someone who can step into their shoes
and someone who is fully up to date with recent changes in legislation. For
this very reason, it is important to cross-cover/train, to ensure the
continuity of tasks and responsibilities.

·     It should be reviewed and
managed regularly to address any problems and make changes accordingly. If
something is not working well, having a review process in place will allow you
to recognise this much quicker and easier, thus preventing the escalation of a
potential problem.

·      It needs to generate reports to
be easily sent to HMRC. These also need to be backed up and saved, in case of
spot checks in the future.

 

·       It  should be flexible
and adaptable to easily cope with changes .

·      It must generate payslips that include all the necessary information for the timely issue to employees, depending on the agreed frequency of pay.

·   It needs to be a high-quality software package recommended by HMRC, which is robustly tested to ensure all requirements are fully covered.

 3.3 Why Payroll Systems Are So Closely Connected with HMRC

Thus far we have repeatedly mentioned HMRC and possibly depicted a rather worrying picture when it comes to compliance issues with HMRC.

However, it is important to point out that making sure you cover everything is not as difficult as it may appear, although it is vitally important to ensure these requirements are covered completely.

HMRC regulations are in place to make sure that the correct amount of income tax and National Insurance are paid by every employed person in the UK, and to do that there are many strict guidelines in place for employers, regardless of how many members of staff they employ. If you do not adhere to these strict guidelines, then you are at risk of not only financial penalties but also the possibility of criminal action being taken if it is found that you are unlawfully hiding tax issues. For this reason, it is important to ensure your records are transparent, up to date and very accurate regarding your business activity, in case you are spot checked by HMRC, which can occur at any time.

3.4 Having an Effective and Efficient Payroll System

Having an effective and efficient payroll system in place will keep employees happy.

Ensure you pay them on time and correctly, and have someone they can refer to if they have any problems or queries relating to their pay. The fast route to employee satisfaction is getting this fundamental basic point correct and there really is no excuse for any other outcome.

3.5 An Overview of Payroll Software Packages

Choosing the right software package for you is an important decision.

You need this for the completion of your payroll requirements. It should be easy to use, easy to train people in, and allow you to complete all the functions you need without having any glitches that require further programs to run alongside it.

It is a good idea to trial a few systems beforehand, in order to find the one most suited to your needs, and it is certainly a good idea to do your research and check reviews too. If you decide to run your payroll yourself, then you need to find relevant software; it is that simple. However, if you choose to outsource your payroll to another person, such as an accountant or a bookkeeper, then you do not need to do this and you can skip this section.

If you employ 10 people or less, then you can use the free software available through HMRC, which will complete all the basic functions needed for payroll requirements. If you employ more than 10 people, then you need to source paid-for software. The list provided by HMRC is large and there are far too many programs and companies to mention here - so you should shop around and find your ideal product.

When selecting your ideal software package, you need to review the features it contains. Not every software package has the same inclusions, for instance, some do not allow you to produce payslips and some will not let you record pension contributions, make payments relating to pensions, or include variables, such as paying certain people weekly and others monthly. On top of this, some software packages will not allow you to send certain reports to HMRC, which may cause some difficulties in some circumstances.

What Does Software Do?

Software helps make payroll much easier than if done manually. The software will do the maths for you, allowing you to record employee details, and work out how much to deduct from pay for income tax, National Insurance, etc. It helps you report all your payroll information to HMRC, calculate how much you owe, and calculate the sometimes complicated maternity and sick pay requirements of your employees. Obtaining the right product for your particular business will allow your payroll system to run smoothly and effectively from the start.