4.1 Know Your Payroll System
It's important to fully understand
your own payroll system.
Once you set up your payroll system
you may believe that the hard work is over, but in fact, it is only just the
beginning!
Put simply, your payroll system
should form the backbone of everything you do within your financial functions,
and not dedicating enough time to it could result in problems. In order to run
an efficient payroll system you need to have the correct people using it,
running it and inputting the correct information. Training and regular reviews
are essential.
If you are not the one who is
actually conducting the payroll function of your business, it is still
important to know how it works and to drop into the department from time to
time to check there are no problems and that everything is running smoothly. If
you are working within a large organisation and you have a payroll department,
then that department will probably have an overall manager overseeing
day-to-day running.
If, however, you are a smaller business, then you will need
to have an understanding of the general management of this function. Of course,
your payroll team will be more specialised than you are, because they are
dealing with the system each day; however, understanding how the system runs,
what you need to do and the legal requirements it needs to fulfil, is vitally
important in order for you to have a general overview of your business's
function and activity.
If you have an accountant working for
you and undertaking your payroll functions, then you still need to have the
final say on decisions. So, having regular meetings with your accountant is the
way forward. Perhaps a weekly meeting could be a good way to pass information
in both directions; however, at the very least, a weekly telephone conversation
should be undertaken.
A monthly full debrief is also advisable to keep you
abreast of any developments and problems, and to have a two-way discussion
about how things are working out. We have mentioned previously that the
legislation and requirements in terms of HMRC change occasionally and, as a
manager, it is important that you are as up to date with these as your payroll
team is.
Sending
your staff on regular refresher training courses is also a good idea, as well
as you attending them too.
Ultimately,
the responsibility of business accountability rests with the manager of the
business, therefore, it is important that you too understand such a vital
function of your business. If you are the one performing the payroll function,
then you need to know all about your system; the software you use, the records
you keep, the reports you send, the problems you encounter, what deductions and
additions you need to make to employee pay, and any scheduled future changes.
4.2 Staff Training
Staff training
shares knowledge and allows improvements to be made.
It is important to put together a
work instruction for your payroll system that can be used for new starters in
the department. This work instruction should form the basis of their induction
training and it can also be used as a guide for staff who need to assist/cover
the payroll duties of the company in the event of sickness or annual leave
within the department itself. Whenever something changes, e.g. HMRC rules, the
work instruction should be updated.
It is also important to continually
review the work instruction by asking staff about any anomalies that arise, as
these can also be incorporated. If you are not the person responsible for the
day-to-day running of your payroll system, make sure you liaise with the person
who is, because they will have the greater knowledge of the system.
Training days are vital to ensure
that staff remain completely up to date on payroll issues and legislation. Even
when something does not change, regular refresher training is still important
because it highlights issues which may have been forgotten or areas that need
review or improvement.
Day to day running of your payroll
system may raise areas you are not sure of or issues that have never arisen
before. In such a case it is important to discuss them together as a team, to
find a way to address them and also to put together a plan of action should
they reoccur. Again, be sure to include them in your payroll work instruction.
4.3 Regular Review
is the Way to Continually Improve
When you first put your system in place you may have no idea if it is
the correct way forward, you simply know that it meets requirements in terms of
paying everyone correctly and sending the correct payments and information to
HMRC.
This is not where the story ends in
terms of an effective payroll system, because it also has to work well in terms
of financial function.
If your system is difficult to use
and is regularly causing problems, then it clearly is not the correct system
for you. Regular review is the only way to identify such problems and it also
gives you a way forward to correct issues and change areas which are causing
regular problems to occur.
Periodic meetings with your payroll
team will also help you identify any areas of concern and you can brainstorm as
a team to put them right. Again, checking with the person who is actually
undertaking the payroll function is the best way to identify whether your
system is working to its maximum potential.
4.4 Communication
Really Is Everything!
Running your
payroll system requires both verbal and written communication.
Your system will not run at all well
if you do not communicate issues to the relevant personnel. We have used this example previously
but it is worth highlighting it again - If you use an outsourced individual for
your payroll needs, such as an accountant, then you need to make sure every
single thing which relates to employees' circumstances is reported to them in a
very timely manner. Setting up a two-way communication system is the best way
to address this issue, with a receipt of messages confirming that the correct
information has been communicated.
Changes to employment, such as leaving, joining, maternity leave, sickness, study leave, and overtime payments all need to be communicated to the person who is undertaking the payroll function. If you are the one running the payroll yourself, having an organised system to ensure these changes are recorded is a good idea; perhaps a spreadsheet of changes to be made, with these being ticked off as you enter them into the software system.
Failsafe systems need to be in place in order to stop major problems from occurring. Even a simple mishap of not letting HMRC know that an employee has gone on maternity leave, until perhaps one month later, can result in a bigger problem to sort out because overpayment will occur and confusion will arise at the very least. We have heard that 'it's good to talk' and in this case that is certainly a very true statement.
4.5
Weekly or Monthly Payroll Management - Your Day-to-Day Duties Explained
If you pay your
employees on a monthly basis, then the final submission of wage information to
HMRC should be done each month. If you do this weekly, it needs to be done
each week.
Despite this, there are countless
other tasks to action throughout the week or month, aside from final
submission. For instance, within a large company, you will have a constant
stream of paperwork/information entering the department and all of this needs
to be entered into the software system in a timely manner and stored in a
correct and confidential way.
These are a few of the regular duties that will occur on a day-to-day
basis within your payroll department, whether this is a one-person effort or a
whole team of people:
1. New starter
information will need to be entered into the system.
2. Information
regarding staff leaving the company will also need to be input.
3. Staff who are due
to go on maternity leave will need to be recorded.
4. Sickness absence
will need to be recorded.
5. Overtime claims
need to be collated from various departments after manager authorisation.
6. Paper-based forms
and information will need to be stored in the correct manner.
7. Queries from
managers and employees will need to be dealt with
8. Final submission of
employee wages will be time-consuming, especially within a large company. This
will include inputting figures to create calculations on how much income tax
and National Insurance are owed, as well as how much the company owes to HMRC
per week/month.
9. Wage slips need to
be produced and distributed at the correct time.
As you can see, payroll is not simply a case of inputting a few numbers
into a computer system and pressing 'enter'.
4.6 How to Store
Important Records and Information
We have touched upon
this briefly in that we need to store sensitive and important information;
however, how exactly do you store it to ensure it can be accessed by those who
need it, that it is kept safe and that it is also kept for the correct length
of time?
You have two choices here - you can
save things in a manual way, e.g. paper-based, or you can store everything
electronically on a computer, also scanning paper documents onto a computerised
form.
Whichever you choose, you need to
comply with strict guidelines:
· If you store information on a computer you should password-protect the
files and regularly change the password to ensure safety. Also, only the
relevant people should know the password.
· You should back up any computerised records using a sensitive and encrypted
method.
· If you opt for a paper-based system, you need to store documents in an
equally confidential manner by using lockable filing cabinets and in turn
keeping those cabinets in a lockable room.
· You will need to keep various records, such as copies of new starter
forms and reports sent to HMRC, and these should be kept for three years after
the end of the tax year they pertain to.
· Records should be stored in a way that makes them easy to access and
also allows people to find what they are looking for quickly and easily.
Therefore, setting up an effective filing system is very important, be that
electronic or paper-based.
· Filing cabinets should be fire-proof to avoid losing important documents
in the event of a fire.
It is important to recognise that it is a legal requirement to keep
these records and, in the event of a spot check by HMRC, you will be asked to
show documentation of your financial activity; including proof of how much tax
you should pay and how much you actually did pay. Failure to do this could
result in a financial penalty and HMRC then estimating how much tax you should
pay back.
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