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PAYE e-filing deadline shakes up payroll industry

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The shift in May to compulsory online filing of employer’s year-end PAYE reports for companies with 250+ employees (May 2006 for those with 50-250 employees) is shaking up the payroll industry.

While the transition to internet filing is stimulating a lot of software sales and encouraging companies to consider outsourcing options, payroll managers, software developers and payroll intermediaries are being put under pressure by the deadlines, according to Kate Upcraft, policy & research manager at the Institute of Payroll and Pensions Management.

Upcraft runs an advice line for institute members and commented that the level of PAYE e-filing queries has been climbing steadily in recent months.

“Online filing is our top query at the moment,” she told sister site AccountingWEB. “Everything has been thrown into the melting pot. A lot of people had to consider whether their current payroll systems could cope. The deadline has focused their minds on how much it’s going to cost to comply and whether to turn to an intermediary.”

Payroll and benefits are among those houskeeping tasks that are fairly straightforward to process, but can use up a great deal of company time. The move to e-filing has prompted companies to question how they carry out these tasks.

“People are going back to basics to see how much payroll processing is costing them. If they outsourced, has it stacked up? If not, with the cost savings and incentives available with e-filing, they are considering bringing it back in-house.”

The more common response is that many people have their heads in the sand and make the assumption that other people will do it for them. “Just because you are using a bureau to do your payroll run for you, don’t assume e-filing will not affect you,” she warned.

For example, unless they have appointed a bureau to handle remittances as well as the payroll run, many employers will find that they have to file the P35 return, which is their declaration of the sums owed and paid to the revenue after reconciling their payroll accounts for the year.

The “250 Club” affected by this May’s deadline includes many large organisations who look at their payroll from a wider HR perspective and take a more strategic approach to the issues. However, some may find that the implementation costs are too high to meet the May deadline and opt to take the £3,000 hit of non-compliance penalty, Upcraft predicted.

“I think there will be more activity in the intermediary market when the 50-250 employee companies have to file online next year. A lot of them may decide they can’t be fussed with the transition.”

While bigger employers have to make the switch this year, tax-free cash incentives are currently available for smaller companies who migrate early – up to £825 for companies with fewer than 50 employees who do so this year.

The outsourcing debate
Payroll lies at the heart of the outsourcing debate – as many payroll bureaux operators will tell you, it is precisely this sort of non-core activity that you should consider parcelling out to a specialist who can carry it out more efficiently for you.

It sounds like good business logic, but as Upcraft’s warning about P35s illustrates, there can be hidden catches for the unwary. Regular horror stories such as the supply chain debacle at Sainsbury’s and reports of troublesome transitions have kept the in-house/outsource debate rumbling for ages.

If it is going to work for you, you need to know exactly what you want and how much it is going to cost to process each payslip – bearing in mind any additional charges for corrections, management reports and even stationery. All of these will need to be set out in a Service Level Agreement.

Aside from costs, management control is another area for debate. If your accounting system links to the payroll module, the outputs can be pulled through for financial reporting too. Of course, many bureaux may be able to link to your finance systems too, but you will need to manage the security issues and be aware of extra costs involved.

Further information

As payroll and HR professionals begin to review their software capabilities, HRZone will look at the wider strategic picture including:

  • Does the burden of red-tape increase the arguments for outsourcing?

  • Where does outsourcing leave HR?

  • How will advances in technology change the future of payroll?

  • How can HR help to deliver improved business performance through cost savings?

We will be running regular articles on the subject in the coming months, which we will compile in a special email supplement in February. How prepared are you and is outsourcing or in-house processing better for your organisation? Use the Post a Comment button below to share your thoughts with the rest of the online community.

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Annie Hayes

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