The ultimate guide to payroll compliance

Compliance is a forever challenge regardless of your business size and type. It seems challenging to foreign managers and companies willing to conduct business in the UK.

The UK has been a popular destination for several countries to expand their international business.

This payroll guide will share all necessary information on payroll compliance, including,

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●  Payroll in the UK: Introduction
●  Payroll legislation in the UK
●  Tips for maintaining payroll compliance
●  What is Apprenticeship Levy?
●  What is the Gender Pay Gap?
●  What is the Executive Pay Gap?
●  Final thoughts!

Payroll in the UK: Introduction

Payroll ensures proper financial management and record-keeping, plus assures employees and tax authorities receive timely payments.

Companies mostly face problems complying with the General Data Protection Regulation (GDPR), National Living Wage, offering workplace pensions, ensuring the correct payroll process year-end, and other areas related to the UK payroll system.

The UK government legislation sets rules for minimum wages, the payroll tax system, and social security deductions.

Using efficient payroll software, hiring professionals, or outsourcing payroll is suitable for any business to stay compliant with UK payroll legislation.

Payroll legislation in the UK

●      Employment Rights Act, 1996: Sets out the basic legislation for every employee in the UK, including contract types, authorised and unauthorised salary reductions, and pay for time-off work entitlement.

●      National Minimum Wage Act, 1998: Sets the regulations and application of minimum wage; however, the rates may vary.

●      Part-Time Workers Regulations 2000 and Agency Workers Regulations 2010: Sets equal and fair treatment for workers.

●      Income Tax Act 2003 and Income Tax Act 2007: Governs the UK’s personal payment and payroll tax.

●      National Insurance Contributions Act 2015: Sets legislation for social security and payments and penalties for businesses.

●       Pensions Act 2008: Instructs employers to set up and contribute pension funds for employees unless they opt-out of the benefits.

All these laws control employee payments and deductions. Companies need to be aware of the following legislation:

●  IR35 and contractor employment
●  Payroll legislation and the European Union

Tips for maintaining payroll compliance

  • Keeping personal records

Keeping accurate details of every employee is essential. This information keeps changing, and you need to update it from time to time, whether that’s bank details or applicable tax bands and others that can affect monthly payroll.

  • Meeting employee expectations

Keep details of what you expect from employees to maintain compliance, like keeping track of their overtime duty and accurately following the expense policy. There must not be any oversight in record-keeping on your side.

It is best to create guidelines and policies on everything that impacts an employee’s pay.

  • Workplace pensions

You need to assess every employee monthly to check if they meet the criteria for automatically enrolling into a pension scheme.

Regardless of how many employees you have, you are an employer if you have a staff member. Ensure that employees have an opportunity to opt-out of a pension scheme if they request it.

  • Audit trail

Get a specific payroll system in your business that can help you complete an audit trail functionality whenever asked by the HMRC.

You must stay prepared if you need to provide a timestamp record of invoices and purchase orders related to business transactions. Audit trails are a way to protect against fraud and provide information on the financial health of an organisation.

  • Stay updated

Payroll legislation constantly changes, and a minor amendment can disrupt business operations. Entrepreneurs need to stay updated with the rules and regulations related to payroll and maintain compliance in their organisation.

  • Start ahead of time

Stop leaving things for the last minute when you make most mistakes in a hurry. The repercussions of these mistakes may result in costly penalties.

In October 2018, the ICO fined Facebook £500,000 for breaching data protection laws, and in 2018, they fined Equifax for a cyber attack that put customers’ financial data at risk.

  • Ask questions

It is good to ask questions when you have queries rather than stay unknown and make mistakes. The government is not only responsible for making legislation and overseeing compliance but helping you find solutions. You can also ask your payroll provider to assist you in maintaining compliance.

  • Ask for employee feedback

Allow your employees to provide constructive feedback on payroll and other processes, find loopholes in the system, or look for necessary changes and improvements. Effective feedback helps your payroll team identify current issues and implement a better remedy.

  • Adopt employee self-service system

Your payroll team can’t run behind every employee and update their personal information from time to time. Therefore, adopt an employee self-service system to provide a seamless process of updating employee records and information related to payroll.

  • Be on time

Don’t be late, especially while meeting payroll deadlines. Make your plan ahead of time and look into other factors, such as tax deadlines, reporting deadlines, and other requirements.

Payroll is never a simple job; you need to provide sufficient time to meet your responsibilities to make the payroll process easier.

What is Apprenticeship Levy?

In August 2017, the UK government introduced the Apprenticeship Levy, which affects employers in every sector, regardless of Industry. The HMRC charges an apprenticeship levy on the employer’s total pay bills exceeding £3 million at a rate of 0.5% and pays them directly via PAYE.

The term “pay bills” refers to the net employee earnings subject to Class 1 secondary NICs throughout the organisation. They receive an annual allowance of £15,000 against levy payments. If an employer operates more than one payroll, they can claim the allowance on any of them.

What is the Gender Pay Gap?

The gender pay gap indicates the difference in average payments between men and women in an organisation and applies to every sector regardless of Industry.

It applies to organisations with more than 250 employees working in the UK.

The gender pay reporting includes six calculations,

●      Average gender pay gap as a mean average

●      Average gender pay gap as a median average

●      Average bonus gender pay gap as a mean average

●      Average bonus gender pay gap as a median average

●      The proportion of males receiving bonus and proportion of females receiving bonus payments

●       The proportion of males and females when divided into four groups in order of their payments from lowest to highest.

After calculating, publish the results on your website and relevant government websites within 12 months of the reporting deadline.

You can also provide a narrative along with their calculations to give details behind your results and what actions you will take to reduce or eliminate the gap.

What is the Executive Pay Gap?

On 1 January 2019, the UK government introduced the Executive Pay Gap Reporting legislation. According to that, any organisation working with more than 250 employees in the UK needs to produce an annual report on the pay gap between their average UK workers and the chief executive. The reporting aims to provide transparency throughout large businesses and insights into pay ratios across organisations.

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Work with UK-based Experts for tax, audit, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 983 8100
Monday to Friday 9am – 4:30pm

Final thoughts!

Several payroll services London helps businesses with advice and assistance in maintaining payroll compliance.

This guide contains basic guidelines of payroll legislation, while there are many others to follow. It is good to seek professional advice, get a PAYE-adopted payroll management system, or look for other solutions.

Experlu Editorial Team
The editorial team at Experlu is comprised of seasoned financial professionals dedicated to providing high-quality content on accounting and finance. With a wealth of experience and diverse expertise, the team produces insightful articles that have established the Experlu blog as the UK's leading financial and accounting resource. The team includes accountants, auditors, and business advisors who stay updated with the latest industry developments. Their commitment to excellence ensures that Experlu remains a trusted source of information, helping readers stay informed about audit, business, finance, and tax matters.