The 3 Key Payroll Trends That UK Companies Need To Know About

Payroll management is in flux, and employers in the UK must rise to meet the challenge successfully.

The past few years have witnessed an overhaul of the UK's employment market. First Brexit and then the COVID-19 pandemic created changes that have left employers and employees facing new challenges and uncertainty.

As inflation and employee demands rise, UK employers face a payroll tightrope walk. Balancing employee needs, bottom lines, and government regulations is challenging in the best of times, but even more so now. Figuring out where to begin can be intimidating, given the scope of changes in the business landscape.

Here are three trends that are currently sweeping payroll – and how UK employers must deal with them.

More automation and data integrations in payroll tech

Technology has made rapid strides over the past decade. The automation revolution has left a mark on payroll too, with more platforms offering automated payroll workflows and lean processes. In short, the days of outsourcing payroll to service providers are coming to an end. This trend is rapidly reducing payroll processing costs, too.

For instance, catching payroll errors no longer demands that a specialist comb through records on a spreadsheet. An automated platform can catch errors right from onboarding to payroll slip generation.

Sabrina Castiglione, COO of payroll platform Pento, points out that customer needs are driving a lot of this change. "When we talk to customers, it's clear that operational efficiency and designing a thoughtful employee experience are top objectives for them," she says. "Data accuracy and ensuring the most efficient capture and flow of information are key, as well as ease of use and benefit to the team."

This need for efficiency has spurred a move to the cloud, with every electronic solutions provider offering a cloud-based solution. This choice brings efficient cost structures, and the ability to seamlessly scale and integrate with different company platforms.

Castiglione remarks that integrations are essential for a modern employer, given the volumes of financial data companies store in different places. She cites an example of two integrations that boost efficiency. "HRIS and accounting systems hold and rely on payroll data," she says, "and having systems that truly talk to each other eliminates the need for manual data entry, ensuring accurate and seamless transfers of data."

The message is clear: UK employers must embrace automation to ensure payroll operations run smoothly and error-free.

Flexible work emerges as a standard for the long term

Remote work is perhaps one of the primary legacies of the COVID-19 pandemic. Companies were forced to embrace remote work thanks to lockdowns, expecting a return to normal workplaces once the pandemic ended. However, remote work has not taken a step back.

Employees in the UK now have the right to request flexible work arrangements after 26 weeks. "Flexible" in this context applies to every situation from intermittent office visits to fully remote international work environments. This trend, coupled with greater employee preference for remote work, has led to challenging payroll situations.

The Office of Tax Simplification, an independent advisor to the UK Government, has begun reviewing home and remote working situations for people employed by UK companies. Tim Stovold, Head of Tax at accounting firm Moore Kingston Smith, believes UK employers must brace themselves for more aggressive monitoring.

"Very few jurisdictions are aggressively policing this at the moment but," he says, "as hybrid working becomes the norm, a crackdown will come over the next few years as these workers will be seen as a lucrative additional source of tax revenue." PAYE triggers are a good example of the complexity facing UK employers when it comes to navigating payroll for hybrid teams.

Employers must navigate a matrix that considers their primary zone of business, each employee's primary residence, the place where work will be delivered, the employee's time spent working remotely, the length of the engagement with the employee, and the presence of bilateral payroll tax agreements between different jurisdictions.

As a first step, employers must define remote work policies and document their impact on payroll processes. For instance, companies can either embrace a fully remote approach or require employees to request for permission to work remotely. Allowing employees to work remotely within specific geographical areas is a third option.

The payroll implications of each choice will help companies prepare themselves as government scrutiny intensifies.

Regulatory compliance is now data-driven

As government scrutiny intensifies, the need for electronification is increasing. HMRC has long recognized that compliance is often a matter of a company's ability to marshall its data. With the rise of electronic payroll platforms, misrepresenting data or failing to offer audit trails are no longer valid options.

This move to data-driven compliance is evident when examining the latest rulings HMRC has released. The IR 35 off-payroll consultation is a good example. Briefly, the consultation (widely expected to become law) will allow HMRC to account for taxes already paid by an individual when calculating PAYE liabilities.

Kate Underwood, Managing Director of Kate Underwood HR and Training, outlines the impact UK companies face from this legislation. "Companies will need to invest more resources in gathering and reporting data on their gender pay gap and other metrics," she says, "and may even need to restructure their governance processes to incorporate more employee representation, which could involve significant changes in corporate culture and decision making."

Data, or the ability to gather and process it, is at the heart of meeting this regulation. Employers that invest in electronic platforms and prioritise data sourcing and integration are likely to meet these government needs while keeping costs under control.

Meeting the payroll challenge

Payroll has always been challenging in the UK, and the trends outlined in this article are unlikely to simplify matters for employers. However, technology and a proactive approach to optimising for scalability will see employers through. Those who fail to adapt will likely find themselves falling short in their ability to attract talent and satisfy regulatory needs.