11 June 2024

Simon Parsons MSc FCIPPdip MBCS, honorary chair, BCS payroll specialist group and director of UK compliance strategies at SD Worx, shares insights into the work of payroll software suppliers and how they help employers prepare to meet ever-growing compliance requirements

These past few years have seen some turbulent change in compliance requirements for payroll software providers. How do they ensure employers are ready to pay the UK and get everything completed in time?

The BCS Payroll Specialist Group (part of the BCS Chartered Institute for IT) represents the payroll software developer community under its Royal Charter. With 78 member organisations, it liaises on behalf of these developers with HM Revenue and Customs (HMRC), the Department for Work and Pensions (DWP), the Department for Business and Trade (DBT) and the Pensions Regulator (TPR), among others.

Its representatives form part of the HMRC representative body steering group (RBSG) and the employer payroll group (EPG). HMRC also has a software developer support team (SDST) which the group interacts with to obtain sight of any payroll changes as early as possible.


Heading towards better stability

Many years ago, HMRC issued its ‘Note for software developers’ with regular updates of amendments impacting the operation of pay as you earn (PAYE). These were seen as the stable source for change. During these past years of political and pandemic turbulence, the regularity of information wasn’t so aligned or ready in such a timely fashion. Most information was drip fed and some very late for the timely development required for strict quality development processes.


How developers obtain information on relevant changes

Following some difficult years including Covid-19 and political disruption, the flow of information has progressed well. Thankfully, the SDST has issued fast-produced updates following the autumn and spring fiscal events. There’s no pretending that, at times, getting rapid change implemented – especially with some employer payroll process timetables requiring very early processing for April payment – were challenging. The changes in reduction to National Insurance (NI), although tight, were released at speed to enable software developers to be ready as soon as possible.

Keeping involved in consultations and forming relationships with stakeholders in government departments is key. There’s a lot of change impacting payroll over the next few years. Sometimes the headline of change is promoted. However, the detail of what it means isn’t always obvious.


April 2024 changes and preparations for 2025

Overall, the changes for April 2024 have been a great success given the circumstances of later announced reductions in NI. Software developers need some congratulations for handling the transitions to change so well.

HMRC has announced a number of consultations which will impact UK payroll in April 2025. The details aren’t yet clear and there are transitions that many employers may need to consider.

The primary requirement which may be a challenge is the one which involves applying the number of work hours paid on the full payment submission (FPS) each period and if not provided, a reason given as to why not.

Now employers are likely to fall into three camps:

  • the data is already available and processed within payroll
  • some information is available but it will need to be sorted carefully
  • no hours information is collected at all.

The reason for the worked hours paid isn’t overly clear. It’s required in an effort to obtain more accurate data but the question is, more accurate data for what exactly?

The software change is likely to be relatively easy. The disruptor is employers readying to provide the data to payroll and understanding the nuances of what to do for sickness and maternity, holidays and different working types where hours worked has previously had limited relevance.

Another is a requirement that may have been wider originally but has somewhat shrunk to those operating in freeports and investment zones – the postcode of the place someone works.


The impact of employment law on payroll

The challenge with employment law and its impact on payroll is that its interpretation is much wider and not so clearly defined. Often the standard DBT response to technical questions is for the employer to seek appropriate legal advice. But isn’t that why they were asking the DBT, in effect, as it sets the guidance to the regulations and created the policy?

Equally some major topic areas are not purely about payroll, but have some management and / or time and attendance implications and some human resources scheme governed rules – what has the employer chosen to do within some minimum and maximum parameters of variation?

One area of complexity is the national minimum wage. Of course, that’s all to do with pay. Or is it? Because time and attendance, unpaid work activity, uniform, management requests to stay behind or training in your own time all have an impact.


The change to holiday

Another area of varied interpretation is holiday entitlement and pay. So, software developers have recently interacted with the holiday pay leads at the DBT to gain a better understanding of the required rules – these are many and varied. The reality is that a portion of UK employers don’t operate any of the Working Time Regulation holiday pay rules. Some do something completely different with a variety of kind of getting there, to others which are completely incorrect. On 1 January 2024, the DBT issued new holiday pay guidance. This was revised again in April 2024. Will payroll software capture all the changes and have them in time? Some will and some won’t as the timelines were too tight and the changes difficult.

So, payroll software which offers some options for holiday pay will need to offer a variety of selections, and new options were introduced for holiday years commencing on or after 1 April 2024 where an employee is an irregular hours worker or a part-year worker.

The discussions on requirements are still ongoing. A major challenge for holiday pay is that is that it needs to be judged on weekly earnings, in many cases up to the Saturday prior to the leave starting – even if that week hasn’t yet had pay calculated. For anything other than weekly, that’s a hard task to ask as the data is often not compatible, or significant change is required to manage.


Is there such thing as compliant payroll software?

Payroll software developers have a high standard of maintaining compliance in the areas that they can. However, those who claim HMRC accreditation or full compliance may be giving a misleading story. HMRC doesn’t accredit software in that way, and the HMRC PAYE recognition relates to the ability to upload a small number of real time information test records only.

In honesty, the future outlook appears turbulent, but hopefully there will be some planned control. There are significant changes for payroll coming down stream with the data requirements for April 2025 and the mandation of payrolling benefits from April 2026. And then there’s going to be a general election smack in the middle.

I’m sure that payroll software developers will manage their way through all of it. 


This article featured in the July - August 2024 issue of Professional.