Changes in Payroll

The changes fall into four main trends.

Trend 1) The shift towards online systems

In this digital age, more and more services have become available online and payroll is no exception.. With an online payroll system, you can run the payroll at any time, using any computer with a web browser, or even from your smart-phone. The information isn’t stored on your computer, so you can use different computers at different times and it lessens the risk that one of your staff will sneak onto your computer and see what their colleagues earn. Online payroll systems are offered on a subscription basis without the need to buy a new package at the start of each tax year. The software provider also has the ability to update the system when any legislative changes are made, meaning that you don’t have to worry about it. The term cloud computing is sometimes used to describe online systems available on a subscription basis. This term can cause confusion because it has more than one meaning and it suggests that the system is not in a fixed location but in this case it is. Your employees’ details are covered by the Data Protection Act.1998, so you’ll want to know whether the payroll system is based within the European Economic Area. Fortunately, despite the cloud metaphor, it is easy to check the company’s website or ask where your information is stored.

Trend 2) Accounts system integration

Innovation within the accounting software sector, particularly when it comes to online accounting systems, has led to many more accounts packages coming onto the market. Many of these are aimed at an international audience, which gives the product a much further reach. On the other hand payroll is specific to each country and the expense of developing separate payroll systems has meant many accounting systems do not offer payroll options. If you use one of these systems, you will need to find a separate solution for payroll. The good news is that many of the accounts systems have an Application Programming Interface (API) that allows other programs to add transactions automatically, and payroll systems can take advantage of this. A good payroll system will have integration with your accounts systems so you can export your payroll figures rather than having to manually retype them. This helps to ensure accuracy and also saves a little bit of precious time.

Trend 3) Electronic payslips

Email is now a common way to communicate, with businesses and individuals comfortable about receiving information in this way. With many businesses fighting to keep costs low and to run as efficiently as possible there has been a shift towards sending employee payslips out electronically. Large businesses led the way, seeing big efficiency savings by removing their printing, sealing and distribution costs. Now even systems designed for small businesses come with this feature included. This advance in technology means that at the click of a button you can send payslips instantly to all employees without the need for paper copies. As emails can travel across the internet unencrypted, some systems allow the payslips to be password-protected. On receiving the email, the employee must enter a password before they can see their payslip. As well as saving time and money, electronic payslips can reduce the delay between calculating the pay run and paying the staff, because the Employment Rights Act 1996 dictates that payslips must be received at or before the time the employee is paid. By using electronic payslips and the Faster Payments Service, it is now practical to calculate the wages and pay the employees on the same day, even if they all work at different locations.

Trend 4) Online filing and RTI

In 2005, the government asked Lord Carter to undertake a Review of HMRC Online Services. His report recommended a move to online filing for businesses and IT-literate groups by 2012. As a result, electronic filing has been introduced in stages over the last few years, beginning with the larger employers. Now almost all businesses that employ staff must file their PAYE returns electronically. In 2010, HMRC began a consultation on ways for employers to send even more information to HMRC electronically and this will culminate in the implementation of Real Time Information (RTI) for small businesses in April 2013. RTI is intended to improve the information received with regards to PAYE, and to enable the Department for Work and Pensions to more accurately assess universal credits for individuals. Under RTI, you will be required to submit information to HMRC every time you pay your staff, rather than the current system of sending a summary once a year, plus notifications when someone starts or leaves. Similar to payslips, the rule for RTI is that the return must be sent to HMRC on or before paying the employees.

These four trends illustrate the direction small business payroll systems are moving, ignoring the stable features that we have all come to expect. As these trends continue, small businesses will end up with faster, electronic communication between the payroll system at the hub, the users, employees, HMRC and accounting systems at the edge. The common theme behind all four trends is better communication, enabled by technology.