No small change transforming payroll systems

The requirement for mandatory electronic filing of end-of-year returns could
be seen as an imposition, but introducing e-filing for payroll systems could
transform the way you work.  Liz Hall
investigates

The rash of new government initiatives – such as mandatory electronic filing
of end-of-year returns – combined with mounting pressure to be cost-efficient,
is forcing employers to take a long hard look at how they run their payroll.

The deadline for e-filing to the Inland Revenue is just over
two years away for organisations employing more than 250 staff. Those that fail
to comply will face penalties of up to £3,000 on top of the existing
late-filing penalties.

Meanwhile, this April brings a shake-up to working parents’
schemes with changes to Statutory Maternity Pay, and the introduction of
Statutory Adoption Pay and Statutory Paternity Pay. It also sees the start of
Working Tax Credits, and changes and hikes in National Insurance contributions.

Jill Owen, exchequer manager of Liverpool University – which
employs 4,800 staff and has responsibility for 1,200 pensioners – says:
"There has been an unprecedented run of legislation all coming at once to
plan in and process, which is not easy. Sometime soon there will come the
strain that breaks the camel’s back."

Kate Upcraft, policy and research manager of payroll body the
Institute of Payroll and Pensions Management (IPPM) says it is big decision
time for businesses in terms of payroll.

Do they join the ranks of Kent County Council and
telecommunications firm Cable & Wireless, which have chosen to outsource
payroll? Do they seize the chance to buy in a new system or upgrade an existing
one? Or do they opt for a shared services set-up with other non-core functions,
like retailer Marks & Spencer?

Upcraft, former payroll legislation manager at Marks &
Spencer, believes the e-filing target is not achievable for many employers.
"Many employers’ systems do not have the technological capability to
present information via the net, and a lot of our members are looking at
outsourcing or buying in new systems to support e-filing," she says.

Owen is among those employers concerned that their existing
supplier may not technologically be sufficiently on the ball to match the new
legislative requirements. Liverpool University’s supplier is a higher education
institution, which also supplies bespoke payroll software to seven other higher
education institutions.

”I know I am not the only payroll manager lacking in
confidence. But it would be incredibly costly to change systems, so that is
very much in the melting pot," Owen says.

IPPM’s Upcraft says: "Even with existing software, there
is a direct bottom line cost to moving to e-enablement. If you couple this with
the purchase of a new payroll system, it is extremely significant."

A growing number of organisations are deciding it is much
easier to just hand payroll over to a third party. Debbie Monk, payroll manager
at Microsoft, says: "The average payroll person now has to know so much to
do payroll in-house, and more and more are saying ‘here are the starters and
leavers, you do it’."

 Local government
organisations and those in the financial services and retail sectors are
showing the most interest in outsourcing payroll and other HR services,
according to a survey by Capita Payroll Services last year.

The survey of 100 firms also finds that managed services –
which currently takes up 45 per cent of the payroll outsourcing market – is set
to grow by 15 per cent. Bureau services, which takes up another 45 per cent, is
likely to stabilise, and ASP services – the remaining 10 per cent – is set to
grow by 20 per cent.

To meet e-filing requirements, employers must submit their
end-of-year returns (P35 and P14 forms) by internet service for PAYE, or
Electronic Data Interchange (EDI) service, or by using an intermediary, such as
a payroll bureau or agent.

 One of the early adopters
of e-filing, high street retailer WHSmith, opted to keep payroll in-house by
upgrading its Cyborg system. But it still needs new software to comply with the
changes and will be stepping up its staff training.

"Our system is solid and robust enough to cope, but we
will look at our internal processes, such as what data we have to collect and
how we get it onto the system," says Yvette Lamidey, group compensations
manager.

She says that setting up e-filing was by no means painless and
at times very frustrating, especially as the retailer had to deal with three
external points of contact: the payroll supplier, the Value Added Network (VAN)
software supplier and the Inland Revenue.

Since taking the electronic plunge in April 2000, WHSmith has
embraced electronic P45 and P6 forms as well as P14s – end-of-year returns. It
has reaped tangible benefits. The total amount of work saved by using the P6
message – opening and distributing the post, checking the payroll numbers and
entering and checking data – is the equivalent of one full-time employee.

"While I have not cut a ‘post’ per se, it certainly helped
with reducing the need for an additional post a few years ago, and in saving on
posts through natural wastage over the past 12 months," says Lamidey.

W H Smith currently uses a Value Added Network (VAN) to send
information to the Inland Revenue. It is now looking at ways to reduce the
mailbox  costs which, due to the
organisation’s high turnover, are very expensive. It would then use EDI through
its own box instead of a VAN.

"It’s a business decision whether to use EDI, EDI through
an ISDN line or internet, or VAN. It depends on the individual
organisation," says Lamidey.

She says it is important to treat the exercise as a proper
project, making sure sufficient resources are allocated with enough time set
aside. "If you start early enough you will get payback on P45s and P6s.
Yes, you will have to do work on testing P14s, but that is just a part of the
puzzle."

WHSmith is now looking at bringing in student loans and tax
credits to reduce paper handling even further.

Significant benefits

Scotland-based Standard Life has also seen significant benefits
since introducing electronic filing 18 months ago. It is saving noticeably on
manual resources – previously, it took about two weeks a year to input all the
tax updates. It now takes around six days.

The financial services company pays around 12,500 staff,
including pensioners. It uses Employers’ Electronic Communication (EEC), also
known as EDI, to process P45s and P6s, and to electronically receive P9s – or
tax code changes – from the Inland Revenue.

Standard Life was able to use its existing system, Unipay, from
RebusHR. It is also well-placed to deal with imminent changes to statutory
maternity pay, paternity and adoption pay, as it already pays the latter. It is
now looking closely at how to further improve its payroll operation by
strengthening the emphasis on electronic processing, and handing over
responsibility to staff.

"We want to improve procedures, looking at process mapping
and what the customer is telling us, so that we can offer excellent customer
service and cut costs," says Julie Wilson, payroll manager at Standard
Life.

Plans for the future include imlpementing self-service options
– such as the facility for staff to update their bank details online, which is
expected to go live in the Spring – and expanding the e-filing system to
include student loans.

David Barr, head of HR operations – which encompasses payroll –
says: "As we move forward, we will be making self-service the key thing so
that people have greater access to information. This will sort out lots of the
calls and letters we get, whereas now, we have to go back and manually adjust
things. We want to make the process as slick as possible."

It was this desire to give more control to staff, combined with
the need to achieve e-government goals, which led Ipswich Borough Council to
introduce a state-of-the-art system.

The council, which employs 1,300 staff, has signed a £300,000
deal with RebusHR to provide a fully integrated HR and payroll solution. The
seven-year project ties in with the council’s decentralised approach to people
management.

"Our main objective was to take the service to employees
so they could access non-confidential information, such as payroll
records," says Julie Price, head of HR for Ipswich BC. "It was also
our objective to do e-government and gradually eradicate paper."

Marks & Spencer was recently forced to rethink how it runs
its payroll and other non-core functions when it moved its London headquarters
from Baker Street to a smaller site in Paddington, which housed 1,800 staff
instead of 3,000. It had to choose between outsourcing, or keeping payroll
in-house, but operating from a different location.

When the retailer examined benchmarking statistics, it
established that in terms of cost per payslip, it was one of the top five
companies. It also had a very good ratio of 25.5 full-time employees to 63,000
static staff (110,000 staff going through payroll). Keeping payroll in-house
made the most sense. Along with other non-core parts of the business, it is
setting up a 64-strong shared services division in Manchester’s Salford Quay,
which goes live in September.

Like so many organisations with vast workforces, M&S uses
RebusHR’s tried-and-tested Unipay and Uniper systems. Sandra Carr, head of HR
shared services, says: "It’s old technology, but along with Oracle, it is
one of the few that can cope with such large numbers of employees."

The company also uses PIMS . But it will be using PeopleSoft’s
core ERP solution for its state-of-the-art HR system of the future.

"The PIMS personnel management system is a really old
system that has a lifespan of about another 18 months. At the moment, the
payroll system is the only one true source of data, with PIMS, PeopleSoft and
the pensions system all feeding into it. However, this is not where we want to
be," says Carr, "so we need to get PeopleSoft fully
operational."

M&S uses PeopleSoft’s HR, Learning and Recruitment modules
at head office and its eight recruitment centres. It then has another 43 sites
picking up HR administration through the PIMS system, which it retains for its
time and attendance element, which drives and feeds payroll.

"As soon as we find a time and attendance product
compatible with PeopleSoft, or if we go for their new version, it would mean
the 43 PIMS sites will no longer have to exist," says Carr.

"I think of our payroll as a Brussels Sprout, with a core
and all these bits such as legislation changes all hanging off. It all looks
hellishly complicated and we need to dumb down," she adds.

Although it is early days, a growing number of companies are
exploring the possibility of single international payroll applications. M&S
is currently looking at PeopleSoft’s global solution, but is waiting for more
evidence that it works well. Another player in this field is LogicaCMG, who has
been working closely with SAP to offer an international pay service covering
around 38 countries.

The attractions of a single international payroll solution
include greater economies of scale and the avoidance of managing lots of
suppliers in different countries. In the increasingly complex minefield that is
payroll, the search is on for ultimate simplicity.                     

Changing affecting payroll

From April 2003

– National Insurance (NI) contributions will increase by an additional 1 per
cent on earnings above £89 a week. For senior staff, there is no longer a true annual
maximum amount of payable NI. Employees with additional directorships now have
to pay 1 per cent on all earnings, whatever the source

– Child Tax Credit – paid directly to the carer replaces Children’s Tax
Credit

– Working Tax Credit – paid through the wage packet – replaces Working
Families’ Tax Credit, Disabled Person’s Tax Credit and New Deal 50 plus
Employment Credit

– Changes to Statutory Maternity Pay, and the introduction of Statutory
Adoption Pay and Statutory Paternity Pay

From May 2005

– Mandatory electronic filing of end-of-year returns for employers with more
than 250 staff

www.inlandrevenue.gov.uk

www.gateway.gov.uk

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