This week is National Payroll Week! (6-10 September 2021)

What is National Payroll Week I hear you shout…?

It is a week to celebrate payroll professionals and highlight that they do more than just push a button!

National Payroll Week first began in 1998, set up by the CIPP (The Chartered Institute of Payroll Professionals) to celebrate the payroll profession. The week is designed to ‘demonstrate the impact the payroll industry has in the UK through the collection of Income Tax and National Insurance (NI)’. In monetary terms, Payroll contributed approximately in the region of £301bn* to the UK economy in 2020/21.


So, what is Payroll and how can it impact your business?

When Payroll is mentioned the first thing everyone thinks of is salary and pay packets! However, it is a lot more in depth than that and there are a number of factors that must be taken into consideration before the final payslip is issued and your hard earnt cash is transferred into your employee’s bank account!

As an employer, Payroll is one of the most important and one, if not the biggest expenses your business has. Not only is it a big expense, but Payroll is always a hassle!

If you pay too much, you (the employer) are unhappy, too little and the employee is unhappy. Either way HMRC are also unhappy. Failure to get it right, results in fines and unhappy employees or worse unhappy tax authorities!

Let’s have a look at Payroll in a bit more detail and why it’s so important to get it right…


What is Payroll? 

The definition of Payroll in basic terms, involves ‘the financial aspect of dealing with employees including salary, employee benefits, wages, salary sacrifice and deductions.’ The payroll department (or external supplier, if payroll services are outsourced) is responsible for ensuring that all employees are paid and receive expenses correctly and on time.

The processing of payroll is usually the role of the accounting department. There may be a group of accountants who are specifically assigned to payroll processing on an ongoing basis, or certain payroll activities. It can be a complicated process, which requires different teams like HR, payroll, and finance to all work together.


History of Payroll

The word Payroll first came into use around the 1750’s as a combination of the words Pay (a verb) and Roll (a noun) referring to a list of regular payments made to employees as a salary.

However, Payroll’s roots can be traced all the way back to bookkeeping by trade merchants to keep track of their sales and outgoings. Whilst we may all assume that payroll is a contemporary concept, it’s history actually dates back to 7000 BC, the Neolithic period!

Ideas on wages or pay has changed over the different periods in history, starting from food, grain, clothes and even beer in ancient Egyptian times to salt and land grants in Roman times, to today, were we have a monetary based system allowing people to buy goods and services they desire in lieu of work or services rendered.

In the mid-16th Century, Payroll was handled by a paymaster, a person whose job it was to pay wages or salaries in certain organisations, government, and military. 

The payroll as we know it today, came about during the industrial revolution of the 19th century, when the beginning of mass employment and large-scale production in factories and businesses across the country began.  Suddenly, the need arose for employers to keep more accurate records of workers and their pay.

These days companies need to keep track of their employees pay as well as their own buying and selling, and with tax and legislation continually changing, the need for extreme accuracy and efficient payroll solutions has become absolutely crucial to businesses.


Why is it so important?

An employee is your organisations most important resource. Time and money are spent recruiting, training and retaining staff to keep your business efficient and provide your customers with reliable business operations.

Therefore, the processing of payroll is an important and key task.  Employees rely on being paid consistently, correctly and on time and it plays a huge role in maintaining the morale of employees and stability of the company.


3 reasons why Payroll should be top of your to-do list


(1) It helps determine the employee’s net worth within the company- Payroll covers everything from their salary, benefits to bonuses and increments. It allows Management to evaluate the employee’s performance and salary and the value of that employee to your business.


(2) It can increase or decrease an employee’s morale and motivation & maintain employee engagement and progression- The most important impact payroll can have is on an employee’s morale and motivation.  If payroll is late, it can make the employee’s question the company’s financial integrity.  It can lead to under performance and feeling undervalued and may lead them to looking for better employment opportunities elsewhere.

Research shows that 35% of UK workers would find another job if their employer paid them incorrectly even once. Therefore, it is important that Payroll is paid in a timely and consistent manner that is constantly reviewed to keep employee morale high. A reliable payroll team that communicates well and consistently pays employees correctly means your team has the confidence that they are being paid as expected.


(3) Maintains Company Reputation- Not only do employers have financial obligations to their staff they have to adhere to their countries tax and employment legislation. To have a good reputation as a stable employer and meeting tax and law obligations, Payroll Services need to be efficient and accurate.


10 Key Factors to a successful payroll

Payroll processing can be complex to manage because of it has many changeable factors, such as pay scales, employee classifications, promotions, and terminations. To prevent errors, it is essential that there are checkpoints in place at critical points of the process to successfully meet all the criteria required to pay an employee and ensure calculations are accurate.


(1) Start with clean data

Ensure your employees personal information, Tax Code and classification are correct before their first payroll is run! Misclassifications can impact on your employee’s insurance, benefits and have tax implications.


(2) Make sure timesheet information is accurate

Checking for inconsistencies in role, pay scale and hours worked can help prevent and reduce the risk of an over or underpayment on payroll.


(3) Know your total Payroll costs

You need to know how much each employee will cost the business over each pay period.  Factors such as gross wages, benefits, Tax and National Insurance (NI) need to be considered as well as Statutory Sick Pay (SSP) Parental pay (maternal/parental leave), tips, bonuses, pensions, and suspensions which may apply.


(4) Produce and distribute payslips

Issue staff with a payslip of their gross pay, deductions, net pay, and hours worked. This also shows their tax code, NI Number and calculations to date.


(5) File and make payments on time 

Payments to HMRC for Tax and NI must be paid as reported on your Full Payment Submission (FPS) before the 19th of each current tax month. Filing late, missing or incorrect payroll reports can affect your employees’ payments (including Universal Credit) and you the employer can get fined or receive a penalty for not having a valid reason for late reporting.


(6) Complete annual reports and tasks for the next tax year 

The annual report must include your employees’ pay, benefits and deductions in an FPS. Payroll records need to be up to date, so that expenses and benefits can be reported to HMRC for the next tax year. This allows you to give your employees a P60 (an End of Year Certificate showing their annual earnings).


(7) Keep clear and concise records

Your records can be checked at anytime by HMRC so they need to be clear, concise, and documented so they can be followed.


(8) Keep up with minimum wage 

Each Tax year the Minimum Living Wage and National Minimum Wage rate changes, it is important know the latest rates as these are legally binding. 


(9) Keep up to date with legislation and payroll compliance

This can be challenging as payroll legislation and laws are continually changing. Make sure you are keeping up to date with real-time information. For example…Cycle to work schemes, apprenticeships, absence and leave, employment law to name a few.


(10) Simplifying tasks with payroll technology

Managing the ever-changing tasks of payroll can be a lot to juggle and keep on top of. Rather than uploading payroll data manually, there are many software solutions to help simplify the complex tasks of payroll that use automation, connectivity and smart data, saving you lots of time and resources leaving you to focus on other areas of the business.


As you can see Payroll processing is a complex and important function in your business. It can have a major impact and severe repercussions on your organisation if not done correctly.



Are you looking for Payroll support?

We have a team of payroll professionals that would be happy to alleviate your payroll burden. Contact us for a competitive quote on 0113 391 9990. 


And remember… It’s not how much you earn that matters…It’s how much you keep!