Navigating the UK’s payroll environment

Navigating the UK's payroll environment

Operating as a multinational company presents countless business opportunities across the world, as creative minds are able to take advantage of unique cultures to maximise profits. The UK in particular represents a lucrative market for international businesses due to its diverse customer base and global access. This is not without its similarly diverse challenges though. One such area in which companies should be vigilant not to get caught out on is payroll management.

Importance of good management

The reason it can be easy to overlook payroll management is that countries may have various differences (some obvious, some subtle and easier to miss) in laws and etiquette for how this operates. The UK is no different. From data security to HR system integration, going into this market with some prior payroll knowledge – or having connections with seasoned experts – could give your business a crucial head start over the competition.

Bear in mind effective payroll management is linked to employee satisfaction. We all value having peace of mind, knowing a crucial element is in safe hands, and when you’re an employee the main thing you’ll want to know on pay day is that everything was processed smoothly. It helps people feel valued and will also cut down on potential external stresses for your company as employees are more likely to have trust in you. By extension this helps in growing connections with other businesses or suppliers who will respect a well-run company when they see it.

Benefits and deductions

Some of the most important aspects of UK payroll management cover an understanding of employee benefits, tax obligations, and National Insurance contributions. Benefits can include a private pension along with other perks that certain businesses may offer, which will be reflected in an employee’s payslip as deductions.

Other important elements that will be reflected as deductions from gross pay include income tax, National Insurance Contributions (NICs) and (for some) a student loan repayment. HM Revenue & Customs (HMRC) collect income tax in the UK and this will be based on an employee’s tax code corresponding to earnings – so having them on the correct tax code is crucial to ensure a fair amount is being taken.

NICs contribute to an employee’s state pension along with other state benefits; this is something an employer and employee will jointly contribute towards. Student loan repayments meanwhile also depend on correct earnings being reported for the employee as this only applies when one earns above a certain threshold.

Accurate reporting of information

It’s the employer’s responsibility to report accurate earnings, and by extension income tax and National Insurance related data to HMRC via real-time payroll information (or RTI). HMRC collects this data via the PAYE (Pay As You Earn) system in the UK, helping to streamline the process for both employer and employee.

As employers are responsible for reporting correct amounts to HMRC including deductions, while also taking an employee’s personal circumstances into account, using quality payroll software is crucial for this. Expert payroll service providers can also use their knowledge and experience of the UK system to ensure the software is RTI compliant (another requirement of employers).

Keeping records

Another crucial element to keep in mind is record keeping. In the UK, payroll records must be retained for a minimum of three years. This should include details of gross earnings, deductions and payment dates. Again, the responsibility for this data falls on an employer’s shoulders and full understanding of what should be retained is necessary for compliance with laws.

Why retain records in this way? Practically it has some good uses, such as helping keep track of recent employment history, which an employee may like to have for their own records. If someone claims a benefit such as Universal Credit, this can track information reported to HMRC by an employer for the purpose of deducting earnings from their payment, as some may be eligible to claim Universal Credit while working. If they then have an earnings dispute with what’s reported to HMRC for any reason, a recent record of earnings may be necessary to help resolve it.

Avoiding common mistakes

Navigating regulations in what may be an unfamiliar country can feel daunting, but less so if you know what to look out for. Here are some pitfalls to avoid when dealing with UK rules and regulations:

Pay attention to tax codes As previously mentioned, using an incorrect tax code can lead to an employee paying the wrong amount of tax. If you’re lucky this may lead to them overpaying tax and they’ll get the good news of a tax rebate in future (though it’s still not ideal for your reputation). If you’re not, they may underpay tax and receive worse news later on. You don’t want to be the one having to explain that as their employer.

Overtime and bonuses These could be easily missed without keeping track of each employee’s circumstances. You wouldn’t want the awkward situation of an employee enquiring why payment for extra work isn’t on their latest pay slip, as it may deter them from going above and beyond for you in future.

Updated Legislation Rules can change fast, especially with regular changes within government. Political events such as a snap election or Brexit can have an impact on previously established legislation and therefore ensuring you stay updated with what’s happening outside your company can be as important as internal effects.

Late RTI reportingDelayed reporting of accurate information to HMRC can be a major source of aforementioned earnings disputes, especially for those claiming Universal Credit as it relies on timely earnings reports for deductions. Avoiding delays on this can prevent further effort in updating the records later.

Leave entitlements Another important element that can affect payroll is keeping track of holiday and sick period entitlements. This can be another source of dispute with an employee later if mistakes are made so it’s best to keep on top of these records.

Some of these potential pitfalls may appear obvious, but when you’re busy trying to run other aspects of your business as well, small elements can be overlooked and it wouldn’t take long for any one of these to become a bigger issue later on. A way of avoiding that is implementing quality payroll software (courtesy of Snow) and having experts on hand who can help track these elements on your behalf, ensuring your efforts can be focused elsewhere.

Get in touch

We'd love to hear from you. Contact us today.

Book Your Free Demo!

Find out why more than 2,000 businesses trust our solutions.
Simple, powerful, affordable. See it for yourself.