Payroll Compliance Guide [Checklist Included]

Payroll compliance covers the regulations set out by HMRC for employers to fairly and correctly pay their employees. For those in your organisation dealing with payroll, it’s essential that they understand what is expected of them. 

In this article, we will be answering the question ‘What is payroll compliance?’, offering five best practices for payroll tax compliance and providing a payroll compliance checklist.

What is payroll compliance? 

Payroll compliance refers to the laws and regulations surrounding payroll that businesses must adhere to, as set out by HMRC. Abiding by these practices ensures your payroll team and business are doing the right thing – and that your employees are being paid on time. It includes: 

• Calculating the correct amount of income tax 
• Enrolling eligible employees into a pension scheme 

• Keeping accurate employee records 
• Submitting the correct tax-related documents 

The information provided by Gov.UK can help you understand the payroll process in more detail: PAYE and payroll for employers: Introduction to PAYE - GOV.UK (www.gov.uk) 

Why is payroll compliance important? 

When dealing with payroll, it’s important to remain compliant to the regulations as set out by HMRC. If this is not actioned correctly, then there are multiple consequences that can occur, the main one being that your employees may not get paid on time. However, other problems could arise such as fines being issued because of non-compliance. This could be for late or incorrect submissions being given to HMRC. 

There is also the impact that inaccurate payroll will have on employees, which is that they may lose trust in the employer. For small businesses in particular, this kind of error can be detrimental to the reputation of a company and is not always easy to rectify. Regular and accurate payroll reporting is essential for maintaining financial health, identifying potential compliance issues, and ensuring employee satisfaction.

We have put together a helpful guide which outlines the recent changes and updates to payroll legislation, so you can keep on top of them: Payroll legislation UK: Changes and updates | PeopleHR 

5 payroll tax compliance best practices 

Now we have established what payroll compliance is and the importance of getting it right, let’s look at 5 best practices that your business should follow to ensure accurate payroll. 

1. Register as an employer

If you’re a new business, the first thing you need to do is register as an employer. This provides you with a PAYE (Pay As You Earn) reference number but it can take up to 30 days receive this, so getting this done should be a high priority.

2. Choose your payroll software  

Next, you should choose a payroll software. Depending on the size of your company, you may wish to handle this internally. Alternatively, you can opt to outsource this task to a payroll software provider which manages all aspects of payroll.

3. Maintain accurate employee records

By ensuring you maintain accurate and up to date records for every employee, you can make sure your payroll processes are correct and compliant every time. This will reduce the risk of any miscalculations or errors being reported.

4. Be aware of important deadlines

Staying up to date with deadlines of when documents need to be submitted to the HMRC will ensure you remain compliant. This can include filing and payroll processing deadlines, and this information should be available to everyone who needs it within your company.

5. Consider using Time & Attendance software

By utilising  time and attendance software, you can gain an accurate and up to date overview of your employees’ working hours, which can have a hugely positive impact on payroll. This can be particularly helpful for those working different shift patterns.

Payroll compliance checklist 

We’ve discussed 5 best practices for compliance in payroll, now let’s look at how a payroll compliance checklist can come together. Below are ten actionable steps to take when looking to remain compliant: 

1. Register as an employer with HMRC 
2. Regularly review employee details and ensure accurate and up-to-date information 
3. Ensure salaries meet National Minimum Wage (NMW) requirements 
4. Deduct the correct amount of Income Tax and National Insurance Contributions 
5. Submit Real-Time Information (RTI) reports to HMRC after each pay run 
6. Provide payslips to employees each time they are paid 
7. Maintain accurate payroll records for at least six years 
8. Understand and comply with statutory holiday entitlement 
9. Frequently check for updates to employment law and tax regulation 
10. Consider consulting an accountant or payroll specialist 

Ensure your compliance in payroll

As we have covered within this article, it’s essential for businesses to adhere to the rules and regulations surrounding payroll compliance.  This can be made easier by using payroll software which can help automate processes, reduced the risk of miscalculations and errors being reported to HMRC. 

Find out more about our payroll solutions or contact us to discuss your specific payroll needs.

By Sheldon Walker New Business Sales Representative

Sheldon is a New Business Sales professional with Access PeopleHR. He is dedicated to helping SMBs thrive in today's competitive landscape. With over 5 years of experience in SAAS and HR software products, he has provided numerous clients with the tools to make their life easier. Sheldon's passions lie in helping clients achieve their goals and giving them the freedom to do more.