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Navigating the legal minefield of payroll

| Damon Tunnicliffe | 8 September 2023

The average UK business loses £150,000 each year due to entirely avoidable payroll errors. With 170 pieces of legislation directly impacting the payroll process, getting it right is easier said than done.

As National Payroll Week 2023 draws to a close, we’re shining a spotlight on the wealth of laws governing how a payroll system must operate. What does each entail - and what does this mean for business owners?

Payroll is complex - and costly if handled incorrectly

It’s not just about handing out payslips; it's a complex process that involves meticulous attention to detail.

When it comes to balancing the books, ignorance is no excuse - as making a mistake, even unwittingly, can incur punishments anywhere from a steep fine to a criminal prosecution. It is also a challenge for businesses to stay updated because legislation is constantly evolving.

Navigating payroll hinges on a comprehensive understanding of tax laws as well as the ability to balance deductions, benefits, and ever-changing compliance requirements, such as:

Pay As You Earn (PAYE) scheme and tax codes

It’s your legal obligation to work out how much tax an employee owes HMRC. PAYE enables employers to factor in Class 1 National Insurance contributions from workers and ensure that these are properly deducted prior to paying employees. As each employee will have a different PAYE tax code and varying individual circumstances, ensuring strict PAYE compliance is crucial.

National Living Wage laws

While employers can decide how much they choose to pay workers for their efforts, there is a baseline they must stay above - the National Living Wage. All workers over 23 must be paid a minimum of £10.42 per hour (recently increased from £9.50 in April 2023).

Failure to comply with this requirement can result in an investigation from HMRC, leaving you open to steep fines.

National Minimum Wage Act 1998

Just to confuse things, for those employers under 23 and working, a different piece of legislation covers this: the National Minimum Wage Act. More complex still, it is further broken down into the following age brackets: 21–22-year-olds: £10.18 an hour; 18-20-year-olds: from £7.49 an hour; under 18s and apprentices from £5.28.

Income Tax (Earnings and Pensions) Act 2003 and Income Tax Act 2007

Legislation is always being amended to account for changes in culture and holding employers accountable, as well as attempting to make it as easy as possible for employers to follow. Even so, it can be difficult to discern which laws must be complied with, how, and in what capacity. These two pieces of legislation provide the main framework an employer should follow when curating their payroll - but be warned that these too endured further changes on 3rd September 2023.

Stay ahead of your obligations as an employer

This is of course just a brief snapshot of the obstacles employers must overcome to achieve (and importantly, maintain) constant compliance with payroll legislation. While payroll is absolutely essential to any business, the sheer number of potential pitfalls make it a daunting task for employers to manage.

A lot can go wrong if payroll is mismanaged - and it can cause monetary and reputational losses that many businesses may struggle to bounce back from. To minimise risk and maximise compliance in your payroll, get in touch with our specialist team today.


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