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Payroll compliance – How to keep up with legislation

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There’s a danger that first-time business owners imagine payroll to be a simple matter of getting their workers’ money to them on time and accurately. In fact, payroll encompasses a dizzying array of factors: everything from hiring and firing, salary, leave dates, benefits, expenses, commissions, bonuses, pension enrolment – to mention just a few.

With so many potential pitfalls to avoid, you might think that keeping compliant would be an almost impossible task. Yet it must be remembered that legislation isn’t designed to catch companies out. By following a few simple steps business owners can ensure that they protect themselves from the penalties of non-compliance, while keeping employees content by getting them paid regularly and accurately.

Keep effective audit trails

Keeping an effective audit is the single best way that businesses can stay within the bounds of the law. Mistakes can happen to anyone; but when they do, an audit trail will enable investigators to check information so they can distinguish genuine errors from fraudulent transactions.

An audit trail enables business owners, accountants and auditors to examine every change that has been made to each employees’ information. The subsequent report will show when there have been changes to tax codes, hours worked, overtime, and any other factor that affects their pay. Crucially, it will also show who is responsible for making those changes.

Audit trails are an incredibly useful tool for protecting your business and your reputation in the event of an investigation, because it enables you to link each transaction with supporting information – such as invoices or purchase orders – that will validate an unusual-looking payment.

As well as helping to guard against fraud, audit trails ensure that corporate accounts are as accurate as possible, and give the best insight into the health of your young business. In fact, audit trails are likely to be mandated by investors or creditors, so it’s well worth checking that your payroll systems can provide this function.

Real-time information

“Tax doesn’t have to be taxing!” claims HMRC, but many approach their annual tax return with trepidation. For business owners, the consequences of missing tax deadlines can be severe – up to and including the threat of being struck from the Companies Register.

This process was further complicated with the advent of Real Time Information (RTI), the most significant single change ever made to PAYE. Although RTI represents a new and improved way of reporting, it does require employers to submit information to HMRC in real time, every time they pay employees – rather than just at payroll year end.

Help, however, is at hand for those companies that have automated full payment submission (FPS) built into payroll software. This generates the required reports and automatically submits your payroll information online to HMRC, saving valuable time.

Read more from our payroll focus:

Auto-enrolment

Auto-enrolment is already being rolled out across the country, starting with large enterprises. From November it will begin applying to even the smallest businesses.

The penalties for non-compliance can be substantial, so it’s critical that businesses get it right. The good news is that, with a bit of preparation, auto-enrolment can be quite straightforward.

If they haven’t already done so, business owners should work out the deadline for instituting auto-enrolment, as HMRC warns that it may take up to 12 months to get a compliant scheme up and running. Businesses need to know who is eligible among the workforce, which is why having accurate payroll data is so important.

Many smaller businesses have not had to manage a pensions scheme before and without a specialist in-house payroll and HR team feel daunted by the potential time and cost required for auto-enrolment. Using payroll software which is both up-to-date and automatically compliant with the latest HMRC legislation will help to reduce administration, simplify the processes and remove the heavy lifting for smaller organisations.

Founding and growing a business can be a challenging undertaking at times. Yet by partnering with the right technology firms, leaders can have confidence that their payroll processes remain fully compliant, while gaining access to the financial infrastructure that will support their future growth – allowing them to focus on what will help them drive their business forward.

Jonathan Dowden is a payroll expert at Sage UK.

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