As an HR manager, you have the critical responsibility of ensuring everyone is paid correctly and on time. Even one mistake can put employees’ trust and the organisation’s reputation at risk.
Payroll processing, therefore, is a key task and one that need to be done in the right way.
Research by Marlin PR on behalf of Sage shows that 35% of UK workers would find another job if their employer paid them incorrectly even once. Furthermore, 51% would lose trust in their employer and resent them.
What is payroll processing?
Payroll processing is the administration of employee pay based on employee type, status, salary, wages and deductions. It also involves filing reports and paying employment taxes to HMRC.
These calculations must be made in enough time to follow the organisation’s pay schedule, and in compliance with applicable regulations.
Payroll processing can be complex to manage because of its many varying factors, such as pay scales, employee classifications, promotions and terminations. It’s essential to have checkpoints in place at the critical points of payroll processing for as much error prevention as possible.
Here are 10 things that HR managers must do to ensure these calculations are accurate.
1. Start with clean data
Common mistakes such as employee misclassifications happen during onboarding, which impacts your employees’ health insurance and retirement benefits, and tax withholdings.
Add a checkpoint here to confirm the employee classification is correct and for your employee to verify their personal information and tax code are accurate before their first payroll run.
2. Verify timesheet information
For your timesheets, you should have a system in place that checks for inconsistencies with employee type, hours worked and pay scale. A preventative measure here reduces the risk of overspend on payroll.
3. Know your total payroll costs
You need to know how much each employee will cost the business beyond their wages to spot inconsistencies during each pay period. Always factor in gross wages, benefits, tax and National Insurance withholdings for each employee.
You also need to consider Statutory Sick Pay (SSP), statutory pay for parents (maternal/paternal leave), tips, bonuses, pensions and suspensions as they apply.
4. Produce and distribute payslips
You must give each employee and worker a payslip detailing their:
- Gross pay
- Net pay
- Hours worked for that pay period.
Payslips can also include your employee’s National Insurance number and tax code, their pay rate, and their pay and deductions year-to-date.
You may be able to produce payslips using your payroll software if it has this feature. You can use different software if it does not. You can either print payslips or send them electronically.
5. Make payments and file reports on time
Every month, you have to pay HMRC the tax and National Insurance you owe as reported on your Full Payment Submission (FPS) in the previous tax month minus the reductions on any Employer Payment Summary (EPS) you sent before the 19th in the current tax month.
HMRC will send you a late filing notice if you’ve paid any employees and do not send an FPS or send one late. It can also charge you a penalty unless you have a valid reason for reporting late.
Late, missing, or incorrect payroll reports can affect your employees’ Universal Credit payments. You should keep a schedule of essential payroll dates, including bank holidays, that impact closings.
6. Complete annual reports and tasks to prepare for the next tax year
You need to report to HMRC on the previous tax year and prepare for the new tax year. Your annual report must include your employees’ pay, payroll benefits and deductions in an FPS.
To prepare for the next tax year you will need to update employee payroll records from the last day of the tax year, give your employees a P60, and report employee expenses and benefits.
7. Keep excellent records
HMRC can check your files at any time. Your policies need to be clear and documented so anyone can follow them.
8. Keep up with the minimum wage
The National Living Wage and National Minimum Wage rates are legally binding and change each tax year. The National Living Wage is the hourly rate to which all employees aged over 25 are legally entitled.
The National Minimum Wage applies to people who are between school-leaving age and under the age of 25.
9. Keep up with all payroll legislation and compliance
Staying on top of payroll legislation and laws can be challenging because they are continually changing. Real-Time Information, the Cycle to Work Scheme, and the gender gap are examples of how social influences can impact payroll legislation.
You should take advantage of resources such as Gov.uk to understand what changes will mean for payroll as they happen. Attending payroll seminars, watching webinars and going to industry conferences can help to enhance your knowledge, too.
10. Simplify payroll tasks with technology
Managing the many moving parts of payroll is a lot to juggle.
There are software solutions that use automation, smart data and connectivity to save you time on manually uploading payroll data. This can help you to generate reports quickly, reduce errors and maintain compliance.
A modern payroll software solution can simplify your payroll operations, so you can focus on strategic ways that the HR function can help the business to grow.
Your payroll system should help you stay ahead of changes and accommodate rapid expansion. Ask yourself, can the business cope with hiring extra employees? Or, will the extra admin be too much of a burden?
Technological advancements and the influential role cloud computing is playing have accelerated the evolution of business processes from re-engineering to automation.
Cloud-based payroll systems provide real-time reporting as well as frequent updates to cover the latest changes in legislation to keep up with the changing workforce.
As demand increases for businesses to perform complex, labour-intensive tasks, automation can offer a way to save time and increase overall efficiency.
To avoid the issues highlighted above, an efficient payroll system needs to be set up either by yourself (in-house) using HMRC-recognised payroll software or by outsourcing to a payroll company or provider, such as an accountant or a payroll bureau.
The ultimate guide to payroll for small businesses
Ready to take on employees and need help dealing with payroll for your small business? Read this guide for advice to stay on top of this key task.