Top UK Payroll Laws Every Accountant in Practice Must Thoroughly Know

Employment and payroll laws differ from country to country. These laws are often complicated and keep changing regularly, making it difficult for HR professionals and accountants to keep track of them. Just like companies, many accountancy practices, too, largely rely on payroll outsourcing services.

Payroll is a product of a series of calculations, which has only gotten increasingly complicated since 2020. Accountants dealing with clients with a global workforce encounter further challenges as they must work in accordance with the payroll laws of different countries.

Payroll in the UK is processed through an established system. Although its regulations undergo regular changes, the broad payroll administration system remains the same.

If you run an accountancy practice that has just made its way into payroll services, you must be familiar with this system and the top UK payroll laws. Irrespective of whether you outsource payroll services for accountants, having a basic understanding of the system can help you thrive in the payroll world.

Understanding Payroll Administration in the UK

Payroll in the UK is administered through Her Majesty’s Revenue and Customs (HMRC) and the Pay-As-You-Earn (PAYE) system. All employers, irrespective of their firm size, must register with HMRC before they can begin paying salaries to their employees.

Companies in the UK typically pay employees in 12 equal instalments throughout the year. In addition to paying salaries, the responsibility of reporting to HMRC, preparing payslips, and managing pension and National Insurance contributions lies with the payroll processing agency. When accountancy practices have numerous clients and payslips to deal with, they may opt for payroll outsourcing.

It is mandatory that accountants submit all the relevant payroll information to HMRC before the official payday. Further, if your client has an auto-enrolment pension scheme in place, the employees’ pension contributions must be included in their pay too.

Employers in the UK are allowed to pay annual bonuses to their employees. As an accountancy practice, you must keep track of these payments and report the same to HMRC on time.

Top Payroll Laws in the UK

Now that you have an overview of the UK payroll administration system, let’s look at the important payroll laws accountants must be thoroughly aware of.

Income Tax Policy

Income tax is one of the most important components of payroll. Employees in the UK are taxed on their income through the progressive PAYE system, wherein the employer deducts the tax directly at source. In addition, employers also deduct National Insurance contributions from employees’ salaries at 13.8% of their monthly income.

Tax deductions in the UK are different for different incomes based on the brackets they fall into. The first £12,570 of income is exempt from income tax. Income between the range of £12,571 and £50,270 is taxed at 20%, while earnings between £50,271 to £150,000 are taxed at 40%. Any income beyond £150,000 is taxed at 45%.

For companies and accountancy practices that opt for payroll outsourcing services, the outsourcing provider takes care of these deductions.

Statutory Sick Pay Policy

The Statutory Sick Pay (SSP) policy in the UK saw a significant overhaul in light of the coronavirus pandemic. Currently, an employee taking four consecutive days off work due to sickness is entitled to get £99.35 per week from the employer for up to 28 weeks. This rule, however, does not apply if the illness is related to Covid-19 and employees can get a week of SSP immediately.

Paid Leave Regulations

The annual holiday entitlement for employees in the UK is 5.6 weeks. According to this policy, employees working a typical five-day week are entitled to a minimum of 28 days paid leave every year. This benefit is an important aspect of payroll and is taken care of by the payroll administrator. Many payroll outsourcing providers use the latest software to work this process out automatically.

For part-time employees, statutory entitlement leave is calculated on a pro-rated basis, depending on the number of days worked each week.

Minimum Wage Policy

All workers in the UK are entitled to a minimum wage, which is calculated based on their age and whether they are an apprentice. The National Minimum Wage denotes the minimum pay per hour that workers are entitled to.

The National Living Wage, on the other hand, is higher than the National Minimum Wage and workers are entitled to this benefit only if they are above 23 years of age.

In 2023, the National Living Wage for workers aged 23 and over is £10.42 an hour. Employees between the ages 21 and 22 are entitled to £10.18, while the 18-20 age group is eligible for £7.49. The minimum wage for employees under 18 years, as well as apprentices, is £5.28 per hour.

In the UK, an employee’s average pay for the total hours worked must never fall below the National Minimum Wage. Additionally, employees cannot be forced to work beyond 48 hours a week unless agreed in writing otherwise.

Non-Compliance with Payroll Regulations

So far, we have looked at some of the important laws and regulations concerning payroll. These laws are laid by HMRC and must be adhered to by each employer. If you opt for payroll services for accountants, make sure you partner with a firm that understands these regulations well and brings good technical expertise.

Non-compliance with any of the above payroll regulations can result in hefty penalties from HMRC. Non-compliance includes:

• Failure to submit the required information
• Missing deadlines
• Submitting incorrect information
• Failing to notify HMRC of certain changes

In addition to your clients being fined, non-compliance or incorrect payroll can lead to general discontent among employees. It can affect your reputation negatively and even lead to a loss of clients.

Need Help with Payroll Laws and Compliance?

It can be challenging to track the changing payroll and tax legislation each year constantly. Moreover, as payroll became more complicated in the aftermath of the pandemic, there are numerous aspects that employers must take care of while processing salaries. Therefore, many accountancy practices now turn to professional help from payroll outsourcing providers in the UK.

The benefits of outsourcing payroll UK are known to the accounting world. With professional outsourcing support, accountancy practices can hire highly skilled accountants with up-to-date knowledge of the ever-changing legislation, thus making payroll efficient and error-free. Moreover, outsourcing firms use the latest technology to implement changing regulations automatically, reduce manual intervention, and make complex calculations time- and error-free.

If you are looking for professional payroll outsourcing support in the UK, QXAS is your go-to solution. We have a proven experience of 12+ years in serving diverse clients and helping make payroll a hassle-free and profitable service for them.

To learn more about outsourcing payroll support, book a free consultation with our experts here or connect with us at +44 208-146-0808 or [email protected].