Payroll Update for Autumn 2016

EMPLOYERS STAGING FOR AUTO ENROLMENT HIT 200,000

More than 6.5 million employees have been auto-enrolled into pensions as the number of employers establishing workplace schemes hit the 200,000 landmark, according to The Pensions Regulator (TPR). TPR’s executive director for automatic enrolment (AE), Charles Counsell, said: ‘This is another important milestone which shows the successful rollout of AE to hundreds of thousands of small and micro-employers continues.’ He predicted additional challenges lay ahead as more than one million approach their staging dates.

Bobby Battu, Head of Payroll for Wilson Partners, commented ‘The tsunami has now started with the huge wave of business hitting their staging dates during 2016 & 2017. Having spent a lot of time developing our AE solution for clients it’s great to see how we can get our clients set up with minimal disruption at an affordable cost. It’s our job to take the headache of auto enrolment away from our clients.’

If you haven’t hit your staging date yet, make sure you know when it is and you have a plan in place. TPR’s figures showed that more than 156,000 small and micro-employers have complied, providing pensions contributions for 960,000 employees.

The marketing campaign has included television adverts featuring the Workie mascot, seen giving a nudge to people who might not be aware of their duties, such as parents who employ a nanny.

NATIONAL MINIMUM WAGE IS CHANGING…

Some employers may be confused about the national minimum wage (NMW) and national living wage (NLW). The NLW took effect on 1 April 2016 and set an hourly minimum rate of £7.20 for workers aged 25 and over. The Low Pay Commission (LPC) reviews the NMW rates annually for workers and apprentices and, where necessary, increases them for pay references starting on or after 1 October.

The NMW rates apply for workers aged 16 and over, and employees aged 21 and over are treated as adult workers. The LPC is also responsible for reviewing the NLW rates and making recommendations for increasing them.

On 1st October 2016 the National Minimum Wage rates for the different age bands and for apprentices increased. All employers need to make sure they are ready.

  • £6.95 for those aged 21-24
  • £5.55 for 18-20 year olds
  • £4.00 for under 18s
  • £3.40 for all apprentices in their first year. If apprentices are aged 19+, second year pay should be in-line with the NMW rates for their age group (£5.55 if they are aged 19 or 20, £6.95 if they are 21 to 24)

National Living Wage (NLW):

The National Living Wage rate, which applies to workers aged 25 and over, is not changing in October. However, beginning in 2017, future upratings of the NMW and NLW will occur once annually in the April of each year.

AE IS TOO MUCH FOR PAYROLL, SAYS INDUSTRY EXPERT

Research by pensionsync estimated that staging obligations had created up to four hours’ more administration a month for payroll teams and that an extra 7,500 to 10,000 payroll professionals were needed.

‘There are simply no surplus payroll professionals in the UK, which is why companies are frequently turning to bureaus and accountants for support and to manage their additional resource burden,’ explained Bobby Battu, Head of Payroll for Wilson Partners.

The pensionsync study found that it took staff around 67 minutes each payroll run to manage data exchange requirements with pension providers using comma separated value (CSV) files.

‘For a weekly payroll, that is more than four hours of additional administration every month and that does not include sending out any communications to workers nor managing any queries from those workers,’ said Battu.

Automating the process could reduce the time it took and cut down the number of errors, he added.

Read more: “It’s not about the pension” at http://www.wilson-partners.co.uk/2015/04/16/pension/

NO MORE P11Ds?

Did you know you can collect tax on expenses and benefits through your payroll? It’s called payrolling benefits and means you won’t have to send a form P11D for the payrolled benefits, after the end of the tax year. You’ll have to register online before the start of the tax year for which you want to start payrolling and you can do this using the payrolling benefits and expenses online service.

Register now for 2017-18 and give yourself time to check your software and tell your staff before 6 April 2017.

“As automatic payrolling is currently voluntary, employers should consider whether it would be suitable for their organisation, based on the types of benefits offered and the complexity administering the scheme.” Bobby Battu, Head of Payroll commented.

He continued “To work efficiently, payroll teams need to be closely aligned to their tax counterparts and ensure that updates or revisions to benefits are calculated in real-time. The cost and viability should be considered before applying for the scheme.”

“In the future it is likely that automatic benefits payrolling will be adopted as a standard as HMRC moves more towards tax simplification, digital tax accounts and real-time payment models. Getting an early start may therefore prove beneficial.”

For further information on what benefits can be included please contact us.

PAYROLL BASICS: PROCESSING LEAVERS

The fundamentals of payroll:

Here we are looking at the procedures for an employee who is leaving the company of their own freewill rather than having their contract terminated.

Checklist

First, it is a good idea to have a checklist for some of the most common payroll processes, such as dealing with starters and leavers. By including these as part of your payroll procedures manual you can ensure that when they are needed, you obtain all the information you require and can process the employee’s final pay correctly. Sometimes when an employee is leaving, time is tight. Unlike when a new starter joins, you do not have a lengthy period to obtain all the information you need. This is why a checklist can be worth its weight in gold. Remember to review your checklists regularly to ensure that they are effective and up to date. Lastly, if the final payment consists of multiple elements, each should be considered separately for tax and National Insurance (NI).

Fraud prevention

Keeping careful control of the process of adding starters to the payroll and removing leavers is crucial for preventing payroll fraud. Certainly, the reconciliation of the number of starters, leavers and employees paid through payroll should form part of the gross-to-net sign-off after the payroll is run. Another key consideration is the method of payment to use for leavers, particularly for payments after the individual has left. A common error is to unwittingly create an opportunity for a fraudster to divert a payment into their own bank account that was intended for an employee who has left. The leaver sometimes does not notice that a small amount had not been paid to their account, particularly if it was due a long time after they had left.

Calculating final salary

The calculation of an employee’s final salary can be tricky if they leave part way through the pay period. Do you pay them for the days they have worked or deduct the number of days they have not worked? Do you base your calculation on calendar days or working days? Should a day’s pay be based on the number of calendar days in the year and multiplied or should it be calculated on the number of working days in the year (around 260 for many)? Or perhaps the calculation should be based on normal hours worked rather than a daily rate.

Surprisingly, all of these calculation methods are correct. All the law requires is that you are fair and consistent. Ideally, how a part period payment is calculated, and this is particularly important for starters and leavers, should be specified in the contract of employment. However, many contracts are silent on this important point.

Another method would be to calculate the percentage of the pay period the employee worked based on the number of calendar days in that period. For example, if the pay period is a month and they were employed for 80 per cent of the month, you pay them 80 per cent of their month’s salary. Whatever method you choose, you will find winners and losers. So it is worth testing a few scenarios before you make a final decision.

Holiday pay

Any untaken holiday should be paid with the employee’s final salary through the payroll with a deduction for tax and NI. This is the only time that accrued holiday entitlement can be paid in lieu under the Working Time Regulations. If a redundancy arises, outstanding holiday pay is often included with a lump sum payment and is paid tax-free, which is incorrect. As a contractual payment, holiday pay must be subject to tax and NI.

Further, if the employee has taken more than their leave entitlement, the employer cannot automatically assume that they have the right to deduct the overtaken amount from final salary.

This would be lawful only if the employment contract or other agreement specifically states that overtaken leave will be deducted from salary. Otherwise, the employer must obtain the employee’s written authority before making a deduction. If this is not received, the deduction is unlawful and an employee can take a claim to an employment tribunal.

Company loans

An important point to include in a checklist for leavers is to ask whether the employee has a loan. If they do, the payroll should be set up to automatically deduct the outstanding balance from final pay, or as much as can be taken.

However, employers should ensure that their loan agreements specify that if the employee leaves before the money is repaid, the full balance becomes due. Employers should also consider the action they will take if the outstanding balance cannot be recovered from final pay due to insufficient funds.

These recovery methods will also apply if an employee has agreed to repay the cost of training or qualifications should they leave within a specific period.

Maternity leaver

All women have the right to one year’s maternity leave if they are employed and pregnant. They have the right to return to their specific job if they notify their employer 15 weeks before the baby is due and they take up to 26 weeks ordinary maternity leave only. If they take longer than this and if their job is not available on their return, the employer must offer them a position of at least equal pay and status.

Of course, they can do some work during maternity leave by using their entitlement to 10 Keeping in Touch days. Further, if they are claiming Shared Parental Leave and Pay they can also use 20 Shared Parental Leave in Touch days to return to do some work during their leave period.

If they do not want to take maternity leave but decide to leave their employment and inform their employer that they want their P45 to be issued on their last day, any further payments of Statutory Maternity Pay (SMP) must be treated as a payment after leaving.

For tax purposes, any residue payments of SMP should be taxed non-cumulatively on code 0T and NI should be calculated weekly even if they were previously paid monthly, unless it is part of regular earnings. As with any payment after leaving, remember to set the indicator on the Full Payment Submission (FPS) for Real Time Information (RTI) purposes to “payment after leaving”.

However, if the employee is happy to delay issuing the P45, SMP can be taxed using their usual tax code and the P45 can be issued with the final payment. The leaving date on the P45 should be the date of the final payment rather than the date the contract ended, so that the date of leaving, the tax week or month number, and the pay and tax all align.

Auto-enrolment

A new change is that if a worker triggers auto-enrolment while serving their notice, the employer can choose not to enrol them for their final payment.

Issuing the P45

Ideally, the P45 should be issued to the employee with their final pay on their last day of employment. However, more realistically, the final pay is processed through the payroll and paid on the employee’s usual payday, when a P45 is issued.

Employers can now email a P45 to an employee who is leaving, as long as they stick to HMRC’s guidelines. However, employers should never issue a second P45 to a leaver – for example, because a payment after leaving has been made.

A leaver who does not leave

Sometimes payroll is advised in error that an employee is leaving. For RTI purposes there are two ways to deal with this.
If you have already issued a P45 you must set up the employee again on the payroll with a new number or ID. However, if it has not been issued you can continue using the same payroll number or ID.

If the leaving date is incorrect, amend your payroll records. But if you have reported a leaving date on an FPS, take no further action. Do not send an amended leaving date to HMRC because this will create a duplicate record.

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