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Payroll compliance is vital for any business with a paid staff. The penalties for payroll non-compliance can be serious and have long-lasting impacts on both your business and your payroll team.

Payroll compliance ensures that your employees are paid on time, that they’re paid the right amount, and that the authorities get their dues. To help you get the payroll process right, here are seven payroll compliance essentials for limited companies.

1. Payroll reporting

Payroll reports have several purposes. They enable you to get a better picture of your finances, help you predict future cash flow, and highlight any financial discrepancies. In the case of compliance, payroll reports serve as excellent records demonstrating that everything is above board and operating as it should.

These days, recording and reporting are much easier than they used to be. Good payroll software will automatically record transactions and generate reports whenever needed. However, it’s still worth getting your accountant to double-check these reports just to make sure that everything is compliant.

2. Timely filing and payment of payroll taxes 

There are a lot of deadlines you have to be aware of when it comes to payroll. Paydays shift month to month, quarterly reports need to be prepared every few months, and, of course, there are the all-important tax deadlines.

If you miss a tax deadline, you risk hefty penalties and increased scrutiny of your business. So make sure that you file and pay your taxes on time. It often helps to create a calendar clearly highlighting all the critical payroll deadlines. This will help you keep up with key tasks like tax filing.

3. Accurate record keeping 

Keeping accurate records is important when it comes to compliance. Make sure that you have accurate data for every employee and that this data is updated as and when needed. Similarly, ensure that every payroll transaction is recorded so that it can be included in regular payroll reports.

You can, to a degree, automate your payroll records by integrating your HR and payroll systems. Any changes to an HR record will then automatically be synced to the employee’s payroll record as well. But even with automation taking care of data entry, it’s still worth checking for accuracy now and again.

4. Minimum wage laws

It's very important that you pay your employees the right amount. As such, it’s vital that you keep up with payroll legislation, particularly where it pertains to minimum wage.

Payroll legislation is an ever-changing area, so be sure that your knowledge is current and relevant. Regularly checking in with industry experts is a good idea, as they can advise you of any recent changes you need to be aware of. If you fail to comply with payroll legislation, especially minimum wage laws, you could find yourself with legal issues.

For general employer-employee legislation, the Employment Rights Act 1996 is a good place to start. But bear in mind that wage legislation is liable to frequent changes and updates in accordance with the economy, so try and keep up to date.



5. Overtime laws

Similarly to minimum wage laws, you must keep up to date with overtime laws. While UK employers are not legally obliged to pay employees for overtime, they are also not allowed to pay employees beneath the national minimum wage for total hours worked.

So, if your employees do so much unpaid overtime that their hourly average falls beneath the minimum wage, you could find yourself in legal trouble. Similarly, you are obliged to provide employees with their legally mandated breaks per hours worked, no matter if they are on unpaid overtime or within their salaried hours.

Like minimum wage laws, overtime law is liable to change, so make sure that you keep yourself up to date with current legislation.

6. Employment taxes

Taxes are a serious business and form a huge part of your payroll process. It's very important that you calculate, process, and file your payroll taxes correctly and that you pay them on time.

As a UK employer, you will need to use the PAYE system to pay income tax and national insurance on your employees’ salaries. This is in addition to your general corporation tax. You may also need to deduct things like student loan payments from salaries, depending on your employee’s educational history and how much they earn.

Good small business payroll software will be able to work out how much tax and national insurance each employee owes. It will also help you submit those taxes accurately to HMRC so your business can remain compliant.

7. Regular compliance audits

Commissioning regular compliance audits is a great way to ensure that you are doing everything properly and haven’t missed anything. An independent compliance auditor will review your payroll documents, observe your payroll process, talk to employees, and do anything else they deem necessary to work out your compliance status. They will then deliver a report to you, detailing their findings and making any recommendations they think necessary.

Depending on the severity, payroll non-compliance can have very serious impacts on your business. Legal repercussions could include:

  • Financial penalties
  • Reduction in the value of your business
  • Imprisonment

In addition to the legal ramifications, your business could also suffer from things like staff loss and damage to your reputation.



Get legal assistance from LawBite

Payroll compliance is one of your biggest responsibilities. As an employer, you owe it to your staff to make sure that they are paid the right amount and paid on time. Taking steps to ensure payroll compliance will prevent any mistakes in your payroll process.

If you aren’t sure whether or not you’re doing everything you need to to ensure compliance, our expert lawyers can provide you with the appropriate guidance that will safeguard your company. To find out more book a free 15 minute consultation or call us on 020 3808 8314.


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In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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