Payroll Compliance: Understanding the Basics

Remaining compliant with payroll is of utmost importance for businesses in the UK. Ensuring employees are paid correctly and on time while meeting every legal requirement is crucial for avoiding fines, reputational damage, and legal action. So if you’re not clued up on payroll compliance, here are some of the most important things to know:

What is Payroll Compliance?

Businesses are required to meet certain payroll regulations outlined by the HMRC (HM Revenues & Customs), a department within the UK government. Payroll compliance involves correctly calculating employee pay, deducting taxes and National Insurance contributions where applicable, and submitting the necessary reports to HMRC on time.

 

Here are some of the major elements of payroll compliance:

PAYE

Operating PAYE (Pay As You Earn) as part of payroll is one of the key responsibilities for employers. PAYE is a system that collects Income Tax, National Insurance, student loan repayments, and any other applicable deductions, directly from an employee’s wages. PAYE must be accurate and reported to HMRC each pay period through RTI (Real Time Information) submissions.

Statutory Payments

Statutory pay refers to the minimum level of pay an employer has to provide an employee in the event of absences such as sick or maternity leave. Employers need to understand the eligibility criteria for Statutory Sick Pay, Statutory Maternity Pay, and Statutory Paternity Leave and give staff the correct payment amounts when required.

Pensions

Under the Pensions Act 2008, employers must automatically enroll eligible employees into a workplace pension scheme and make a minimum contribution of 3%. Employees can choose to opt out of this scheme if they wish but employers do have a duty to re-enroll employees who have opted out after three years.

Keeping Records

Companies are required by law to keep detailed payroll records for at least three years. These records must include information regarding pay, deductions, leave, and pensions. All records should be readily available in the event of an inspection by HMRC.

Employers Must Remain Up-To-Date

Payroll legislation can, and frequently does, change. So it’s essential that employers remain up-to-date with the latest amendments in order to remain compliant. This can prove challenging for many businesses, which is why a significant number of companies turn to outsourced payroll providers to manage their payroll processes. Payroll providers can make sure businesses remain fully compliant with the latest legal requirements to mitigate the risk of error and non-compliance.

Payroll is more than just paying staff. PAYE, statutory payments, pensions, and record-keeping are legal obligations that businesses who want to remain compliant and avoid disruption must adhere to.