Ensuring Compliance with UK Payroll Laws and Regulations
Being payroll compliant helps you keep your employees happy and avoid unwanted attention from HMRC. We’re Finesse Resources, a specialist payroll provider based in the North West of England. In this article, we’ve outlined the key UK payroll laws and regulations that all businesses in the UK need to be aware of. We’ve also provided some handy tips on how to ensure compliance, so you can be 100% payroll confident.
Important UK Payroll Laws
The following are some of the essential UK payroll laws that all businesses in the UK should be aware of:
- The National Minimum Wage Act 1998: This law sets out the minimum wage that employers must pay their employees.
- The Working Time Regulations 1998: This law states the maximum number of hours employees can work and the amount of paid holiday they are entitled to.
- The Social Security Contributions and Benefits Act 1992: This law dictates the rates of tax and National Insurance contributions that employers must deduct from employees' wages.
- The Employment Rights Act 1996: This law outlines the rights of employees, including the right to be paid the correct amount of wages and to be given payslips.
Your Payroll Responsibilities as an Employer: A UK Checklist
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Fundamentally all you are doing is adding one extra day to their holiday allowance. However in reality you are actually building a stronger emotional connection with your staff. And when employees feel cared for and appreciated, they are more likely to reciprocate with higher levels of commitment and loyalty.
Your Payroll Responsibilities as an Employer: A UK Checklist
The main responsibilities of an employer when it comes to payroll in the UK are:
Register with HMRC as an employer: This allows you to obtain an employer reference number which is used to process all submissions to HMRC.
Set up a PAYE scheme: PAYE is the system used by the UK government to collect income tax and National Insurance contributions from employees. Employers must set up a PAYE scheme and deduct the correct amount of tax and National Insurance contributions from employees' wages, as set out in the Income Tax (Pay As You Earn) Regulations 2003.
Calculate and pay wages: Employers must calculate the correct amount of wages to pay employees, taking into account factors such as the employee's rate of pay, hours worked and deductions. Wages must be paid on time, usually within 14 days of the end of the pay period.
Deduct taxes and National Insurance contributions: Employers must deduct the correct amount of income tax and National Insurance contributions from employees' wages and pay them to HMRC.
Submit payroll reports to HMRC: Employers must submit regular payroll reports to HMRC, detailing the wages paid to employees and the taxes and National Insurance contributions deducted. Since 2013, it has been a requirement to submit reports to HMRC each time an employer pays its employees. This is called the Real Time Information (RTI) system.
Provide employees with payslips: Employers must provide their employees with payslips that show the amount of wages paid, the deductions made and the net pay, under the Employment Rights Act 1996. Many employers now provide their employees with digital payslips using secure online portals.
Keep accurate payroll records: Employers must keep accurate records of all payroll transactions for at least three years. This includes payslips, timesheets, and HMRC returns. This information can be requested by HMRC during an audit.
Tips for Ensuring Payroll Compliance
Here are some tips for ensuring payroll compliance as a UK business:
Use HMRC-approved payroll software: This software will help you calculate and pay wages accurately and on time, and it will also help you keep accurate records.
Stay up-to-date with changes in legislation: The laws and regulations surrounding payroll change frequently in the UK, so it is important to stay up-to-date. You can do this by subscribing to HMRC's payroll updates or working with a specialist payroll provider.
Ensure that all employees are aware of their rights and responsibilities: Employees should be aware of the minimum wage, the maximum number of hours they can work and their entitlement to paid holidays and other benefits like Maternity/Paternity Leave and Statutory Sick Pay. You can provide this information in your employee handbook or a separate document.
Have a clear and concise payroll policy in place: Your payroll policy should set out the procedures for calculating and paying wages, deducting taxes and National Insurance contributions, and submitting payroll reports to HMRC. As the law changes, you will need to review and update your payroll policy to ensure that it remains compliant.
Train staff on payroll procedures: All staff who are involved in payroll processing should be trained on the correct procedures and given up-to-date training on the payroll software they use. This helps to help ensure accuracy and compliance. The Chartered Institute of Payroll Professionals is a good place to start if you’re looking for the most up-to-date payroll training courses in the UK.
Have a robust system for managing payroll records: To keep accurate records of all payroll transactions for at least three years, you must store the information safely and ensure that it is updated regularly. Alternatively, you can work with a trusted payroll firm such as Finesse Resources which will manage this on your behalf.
Take steps to mitigate the risk of data breaches: Payroll data is sensitive information, so it is important to take steps to protect it from data breaches. This includes using strong passwords, encrypting data and limiting access to payroll records to key employees and your chosen payroll provider.
Outsourcing payroll to a professional
At Finesse Resources, we understand that as a small to medium-sized business, it can be difficult to keep up with payroll compliance. If you or your finance team have any concerns over your current compliance, speak to Finesse Resources about our services. We offer bespoke packages that are tailored to your needs, from ad hoc Payroll Audits to complete outsourced payroll management. Get in touch with one of our CIPP-accredited experts using the form below or give us a call on 03303 201 924.