While regulatory compliance, particularly at an international level, has always been one of payroll’s biggest headaches, the COVID-19 pandemic has only made the situation worse.
In fact, our recent study, ‘COVID-19: Measuring the impact on the present and future of payroll operations’, revealed that just over two in five payroll and HR leaders have struggled to handle the complexity of emergency payroll measures and the frequency with which they seem to evolve. In the UK, this includes temporary changes to Statutory Sick Pay and the Coronavirus Job Retention Scheme.
The pandemic has also led to the mandatory implementation of some legislation being deferred until this year – something that may have seemed a relief at the time, but is undoubtedly making life harder now. A classic example here is the contentious changes to IR35 due to come into force for private businesses at the start of the new financial year in April.
The problem is that such changes are not just taking up payroll practitioners’ time, they are also having a wider impact on operations.
For example, in the past, payroll departments only had limited or no dealings with self-employed contractors, which were traditionally paid by the finance department. The forthcoming off-payroll working rules have led to the creation of new categories of employee and employment status. Therefore, in order to handle the introduction of these categories effectively, teams have found it necessary to collaborate with other departments, such as finance, HR and procurement, a situation that has only increased their workload on a day-to-day basis.
Payroll and HR teams are overstretched and struggling
In most organisations though, ensuring compliance with this raft of new requirements has taken place without the addition of extra staff. To make matters worse, our report indicates that one in five payroll and HR leaders have not benefitted from access to the infrastructure and resources required to be productive when working remotely during repeated lockdowns, creating further headaches.
Unsurprisingly then, this scenario has led to many teams becoming notably overstretched, especially in organisations where payroll departments are small.
But just to make things even trickier, it is clear that many senior executives do not understand the challenges that payroll and HR teams are facing in this regard. They are also unaware of the potential risks that regulatory compliance can bring to bear, too often failing to make an explicit link between non-compliance and financial penalties, which include fines.
Other potent ingredients in the risk mix are the potential cost to the company’s reputation should things go wrong, which includes public naming-and-shaming as a result of failing to pay workers the legally-mandated minimum wage, and the damage payroll errors can do to employee trust, motivation and engagement.
|Type of compliance breach||Associated penalties|
|Late Full Payment Submission (FPS)||£400, after three months becomes 5% of tax due|
|Late Employer Payment Summary (EPS)||1% to 5% of tax paid late|
|Tax errors||Penalty percentage applied to the amount that is late, up to 4% plus daily interest. Percentage of repayment increases in increments of 5% after six and 12 months|
|National Insurance (NI) errors||5% of amount due after 30 days, additional 5% after six and 12 months|
|Pensions Automatic Enrolment (PAE) errors||Up to £50,000|
|National Minimum Wage (NMW) errors||200% of amounts due|
|Failure to submit P11Ds||£100 for every 50 employees|
|HMRC submission errors||1. Careless inaccuracy = 30% of revenue lost by HMRC, plus payment of tax that would have been due |
2. Deliberate but not concealed inaccuracy = 70%
3. Deliberate and concealed inaccuracy = 100%
How to ease the burden and boost efficiency
The swiftest and most effective way to mitigate these risks and take the burden off the shoulders of payroll professionals in today’s difficult pandemic circumstances is to engage an expert managed services partner. Doing so enables practitioners to focus on strategic activities, such as handling employee queries and streamlining business processes. It also enables the business to:
1. Grow the team without raising its on-balance-sheet headcount
Although employers are not always in a financial position to hire new in-house payroll staff to cope with burgeoning workloads, managed service providers (MSPs) have the dedicated resources and experience to interpret and implement new legislation quickly and efficiently across their customer base.
2. Gain access to fresh expertise and insight
The consultancy expertise that MSPs provide helps organisations to pinpoint and address latent compliance challenges in order to reduce risk and improve the overall quality of the payroll. Access to this expertise also supports payroll and HR leaders in preparing for upcoming legislation changes.
3. Save time and cost with more effective technology
Access to the MSP’s sophisticated payroll software with built-in compliance and monitoring tools frees up payroll and HR teams to focus on fulfilling other core strategic objectives, with complete peace of mind. The most efficient, agile technology can even give teams back extra time during the payroll cycle to conduct additional checks that help to further improve accuracy.
4. Increase business resilience and improve future planning
Outsourcing helps organisations to ensure the resilience of their mission-critical payroll operations. This factor is particularly important in light of the Chartered Institute of Payroll Professionals’ latest ‘Future of Payroll’ report, which indicates that nearly three out of five employers have no succession plan in place for their payroll leaders.
It is also worth noting that, contrary to popular perception, outsourcing is not an all-or-nothing proposition. Customer-focused MSPs will undoubtedly let you opt for partially managed services that focus on supporting your complex and critical activities, or that even just offer you short-term, emergency support.