As an HR or payroll manager, ensuring that employees are paid accurately and on time is a critical responsibility. A single mistake can jeopardize employee trust and damage the organization’s reputation.
Therefore, payroll processing is a vital function that must be executed meticulously.
Research conducted by Marlin PR on behalf of Sage reveals that 35% of UK workers would consider seeking new employment if their employer made a payment error even once. Additionally, 51% would lose trust in their employer and develop resentment.
This article outlines the key tasks you need to address as an HR manager and provides insights into effective payroll processing.
What is payroll processing?
Payroll processing refers to the management of employee compensation, which is calculated based on factors such as employee type, status, salary, wages, and deductions.
This process also includes filing reports and making employment tax payments to HMRC.
To ensure payroll aligns with the company’s pay schedule and complies with relevant regulations, these calculations must be done promptly and accurately.
Managing payroll can be challenging due to various factors like different pay scales, employee classifications, promotions, and terminations. To minimize errors, it’s crucial to establish checkpoints throughout the payroll process.
Below are 10 key tasks HR managers must complete to ensure accurate payroll processing.
1. Start with Accurate Data
Errors such as employee misclassifications often occur during onboarding, affecting health insurance, retirement benefits, and tax withholdings. To avoid this, include a checkpoint to verify employee classification is correct, and have employees confirm their personal details and tax code before their first payroll run.
2. Verify Timesheet Data
Ensure you have a system to check for discrepancies in employee type, hours worked, and pay scale on timesheets. This helps reduce the risk of overspending on payroll.
3. Understand Your Total Payroll Costs
Knowing the total cost of each employee, beyond wages, is crucial for identifying inconsistencies. Always account for gross wages, benefits, tax, and National Insurance deductions, plus additional factors like Statutory Sick Pay (SSP), parental leave, bonuses, tips, pensions, and suspensions. A payroll budget helps track and manage these costs.
4. Generate and Distribute Payslips
Provide each employee with a payslip that details their:
- Gross pay
- Deductions
- Net pay
- Hours worked
Payslips can also include National Insurance number, tax code, pay rate, and year-to-date figures. If your payroll software allows, you can generate payslips electronically, or print them as needed.
5. Ensure Timely Payments and Reports
Each month, you must pay HMRC the tax and National Insurance owed, based on the Full Payment Submission (FPS) from the previous month, adjusted for any Employer Payment Summary (EPS) submitted before the 19th of the current month. Late or missing payroll reports can lead to penalties or affect employees’ Universal Credit payments. Maintain a schedule of key payroll dates, especially those affected by bank holidays, to avoid delays.
6. Complete Annual Reports and Prepare for the New Tax Year
Each year, you must submit a report to HMRC that includes your employees’ pay, benefits, and deductions through an FPS. To get ready for the new tax year, ensure you handle payroll year-end tasks by:
- Updating employee payroll records for the final day of the tax year,
- Providing employees with a P60,
- Reporting employee expenses and benefits.
7. Maintain Accurate Records
HMRC may review your payroll records at any time. By keeping thorough and organized records, you’ll be able to quickly address queries from HMRC or employees regarding payroll data. It’s also essential to document your payroll policies clearly, making it easy for anyone in your team to follow them.
8. Stay Compliant with Minimum Wage Regulations
The National Living Wage and National Minimum Wage rates are legally required and change annually. The National Living Wage applies to employees over 23 years old, while the National Minimum Wage is for those younger than 23 but above school-leaving age. Starting from 1 April 2024, workers aged 21 and older will be eligible for the National Living Wage.
9. Keep Up with Payroll Legislation and Compliance
Payroll laws frequently change, and staying informed is crucial. Factors like Real-Time Information, the Cycle to Work Scheme, and the gender pay gap can impact payroll legislation. You can stay up-to-date through Gov.uk resources, attending seminars, webinars, and industry conferences.
10. Simplify Payroll Processes with Technology
Managing payroll can be complex, but technology can help. Payroll software with automation and data connectivity can streamline tasks, reduce errors, and ensure compliance. Cloud-based payroll systems provide real-time updates, allowing you to focus on strategic HR initiatives that support business growth.
Final Thoughts
Your payroll system should be flexible enough to handle growth and keep up with changes. Ask yourself if your business can manage the additional administrative burden of hiring more employees, or if it’s time to adopt a more efficient system. Cloud-based solutions offer real-time reporting and frequent updates, making it easier to stay compliant and streamline operations. As businesses face increased demands, automation is an effective way to save time and enhance overall efficiency. Consider setting up a reliable payroll system, either in-house using HMRC-recognized software or by outsourcing to a payroll provider such as an accountant or payroll bureau.
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