Simply explained, ‘payroll’ is the term used to describe the procedures surrounding all payments made by a company to their employees, including the following:
- statutory payments: Statutory Sick Pay, Statutory Maternity Pay, Paternity or Adoption Pay.
All employers must ensure that they make the right deductions and pay their employees the right amount at the right time; so keeping accurate payroll records is really key to the overall process.
Employers must also adhere to the Pay As You Earn (PAYE) system, which is HM Revenue & Customs (HMRC) method of collecting Income Tax and National Insurance Contributions (NICs).
Her Majesty’s Revenue and Customs (HMRC) is a non-ministerial department of the UK Government that was developed to ensure that the correct tax is paid at the correct time.
Any company that has employees, including directors of a limited company will need to deduct Income Tax and National Insurance Contributions from the wages of employees, whilst also observing the various rates, allowances and limits in existence. If the payments made are either late or incorrect, businesses may incur interest on the amounts, or even a fine.
Companies needing to pay employees have a variety of options as to how they organise and implement their payroll system. Extremely large multinational companies for instance, may have their own in house payroll department. A payroll department will usually consist of a team of staff that is responsible for manually calculating the correct PAYE and NIC contributions for each employee, as well as keeping accurate details on file.
Other options include operating in-house payroll but using specialist electronic payroll software to automatically calculate the correct PAYE and NI contributions, or outsourcing your payroll entirely so that an accountant or agency takes on the responsibility of both the record keeping and calculations.
Whatever way a company chooses to organise their payroll, they will need to ensure that HMRC are kept up to date with the relevant information, this is now done in real time. HMRC require virtually all employers, with very few exceptions, to submit RTI forms online as opposed to on paper, meaning that filing and maintaining records electronically holds huge advantages over the original method of paper filing.
Real Time Information (RTI)
Real Time Information (RTI) is legislation introduced by HMRC (in April 2013) to improve the operation of PAYE. While RTI has not changed the way employers need to calculate PAYE, it does mean that PAYE information will need to be submitted to HMRC every time employees are paid, as opposed to just once a year at Payroll Year End.
Employers who run their own payroll must ensure they are using RTI-enabled payroll software so that they comply with legislation.
Outsourcing PAYE to an accountant will mean that they will be able to take care of most of the behind the scenes business for you, though it is still advisable to make yourself aware of the changes and how they may impact your business, if at all.
Do I need to outsource my payroll?
Depending on the size of your business and the number of employees, outsourcing your payroll operations to a third party could benefit multiple areas of your business. Though contracting an external party will generate an additional overhead for your business, you may find that costs are cut in other areas thus justifying the expense.
Listed below are some of the key benefits of hiring an accountant to help with company payroll:
- Accountability – If an employee is underpaid, payslips don’t go out on time or records go missing it is not your responsibility to rectify any mistakes. Providers will usually be keen to correct errors as quickly as possible and if they refuse, or can’t, legal action can usually be sought.
- Accuracy – Mistakes in payroll can be costly, difficult to rectify, and frustrating for employees. Outsourcing payroll to a reliable provider will mean the likelihood of errors is reduced and accuracy is increased as they are more likely to use computerised filing systems than in-house staff. Furthermore, if a sizable mistake is made, you may be able to seek compensation from your provider. Something you are unable to do with your own employees.
- Cost – Large companies can afford to maintain their own payroll departments, but small business however may find that sustaining their own payroll department is not cost effective. Sit down and work out how much time your employees are dedicating to payroll and calculate how much you are spending in comparison to how much it would cost you to outsource. You may find that even though you only have a small company, you may be able to reduce overheads by no longer having to employ a payroll specialist for example.
- Productivity – Managing payroll is extremely time consuming for all parties involved, meaning that when the responsibility is removed, employees will have more time to concentrate on other areas of the business.
- Reliability – In-house payroll departments will be subject to sickness, holidays and fluctuations in workload – none of which you will have to consider when contracting a payroll specialist.
If you have given outsourcing your payroll some consideration and believe that it could be of benefit to your business to do so, there are a number of factors you should take into consideration when searching for and selecting a service provider.
If you are looking to outsource your payroll then you have the option of contracting either an independent accountant offering a payroll service, or an accountancy firm offering a payroll service.
If you already employ an accountant or accountancy firm to deal with another area of your business then it makes sense for you enquire as to whether they could also provide you with payroll services. They have the benefit of already being acquainted with your business and they may be able to offer you a competitive rate as part of a service package.
Whether you already have an accountant, or you need to begin searching for an entirely new service provider, there is a great deal to take into consideration before you hand over the reigns completely.
Before meeting with an accountant and discussing terms, it may be useful for you to consider the following points.
Budget and costs
A hugely important factor – How much can you realistically afford to spend and can the service provider offer a suitable package for that amount? Ensure you are perfectly clear about what services are included in the basic cost and enquire as to whether there are any additional fees such as a charge for setting up the payroll system or administration costs.
If you are a growing business looking to expand and take on more employees in the future, will your provider be able to scale up your service package to adjust to any changes?
Efficiency and professionalism in the management of your payroll operations is key to the overall smooth running of your business, which is why it is important to know the accountant or firm you use is properly qualified. The term ‘accountant’ is not protected by UK law, meaning that anyone is able to refer to himself or herself as such even if they don’t possess any training or experience in the field. When you meet with an accountant or firm, ask them what qualifications and experience they hold so that you can feel assured of their professionalism.
Any independent accountants or organisations that sign up with Accountant Directory are asked to provide either proof of registration with a professional body, or a relevant qualification and insurance cover before we approve their profiles.
Different accountants and accountancy firms will have varying areas of expertise. Is the firm you are looking to contract familiar with your business type and size?
Level of involvement
Are you looking to outsource your entire payroll department, or are you just looking for an accountant to handle monthly payslips? You will need to specify the level of involvement you want from them.
If you do decide to use an outsourced payroll supplier then you must ensure the contract is very carefully drawn up. Business Link, an organisation setup by the government to provide help and advice for small and medium sized businesses, recommends that businesses specify the following in payroll contracts:
- Specify that tax and deductions should be accurately calculated, using the information supplied by you – the company.
- State that the work should be carried out to your specific timescale/s.
- Agree that they will ensure the mandatory requirements are met within the agreed timescale.
- Specify that if the they fail to comply with the agreed terms or any legal requirements, they will reimburse you for any resulting penalties.
- Specify that they will be responsible for keeping the necessary records of any deductions and taxes required by HMRC.
- Specify that any additional payroll charges you may incur should be made clear.
- Specify that they should be prepared to increase their service package to deal with increased demands if your business expands.
If there is no one within the company who feels confident drawing up terms for a contract, you may wish to consult a solicitor to help you to do so.
How could an accountant help with company payroll?
Most accountants and organisations who offer payroll services will be able to take over the following procedures for your company:
- calculate and pay your workers under the Pay As You Earn (PAYE) system, including National Insurance Contribution (NIC) deductions, Income Tax deductions
- Statutory Sick Pay
- prepare all year-end returns
- file and keep the necessary records.
If you would like to find out more about the payroll areas in which an accountant could benefit your business, please visit the following fact-sheets for further information.
- Real Time Information
- Statutory Payment – Statutory Maternity Pay (SMP), Statutory Paternity Pay (OSPP), Statutory Adoption Pay (SAP)
- Employee starting or leaving
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