Other side of the coin

personnel and payroll functions may seem different but there are areas of
overlap – especially the information their systems hold about staff. But this
information differs a great deal between the two functions, and this is
reflected in software design. Ian Congreave reports

is a general view among payroll people that their colleagues in the personnel
department don’t understand them. One commonly expressed reason for this is that
payroll work is driven entirely by contractual and statutory deadlines –
neither employees nor the Collector of Taxes can be paid late.

factor is the nature of the legislation within which the payroll function
operates. Most of the requirements set out in the Employment Rights Act 1996
are to do with the protection and enforcement of employees’ rights, with only a
few affecting payments through the payroll, such as the “time off with pay”
provisions. The effect of employment legislation on personnel departments is
largely procedural, involving the manner in which employees’ rights and
benefits are administered.

contrast, the payroll function operates principally within the requirements of
the Income Tax (Employments) Regulations 1993, various social security Acts and
regulations, and many other sets of regulations relating to Statutory Sick Pay,
Statutory Maternity Pay, Court Orders, Tax Credits and Student Loan deductions.
The effect of this legislation on payroll departments is mainly calculative,
ensuring that employees’ pay and deductions are properly computed.

are areas of overlap, however. Compliance with the minimum wage and working
time rules is a joint payroll and personnel exercise. The annual reporting of
expenses and benefits, and the calculation and payment of Class 1A National
Insurance contributions liabilities, can be carried out by either function, or

frequency and scale of legislative change is another important difference.
Changes that affect personnel are spasmodic – irregular but significant when
they occur. Examples are the maternity and parental leave and the trade union
recognition provisions of the Employment Relations Act 1999. Much of the change
originates in Europe, such as the Part-time Workers Regulations 2000 and the
upcoming Fixed-term Workers Regulations.

legislation, however, changes annually and is largely predictable, as a result
of each year’s Finance Act provisions. They are extensive enough to require the
Inland Revenue to reissue its books and key forms each April, and involve
payroll departments in two annual implementations, one from 6 April and the
other from 18 May. Also, the range of compliance responsibilities was extended
last year to include the payment of tax credits and the recovery through the
payroll of student loans.

these differences are reflected in the design of software systems aimed at
payroll and personnel departments. What payroll and personnel systems have in
common is the information they hold about the same staff.

the design features of these systems and the way in which they are used are
quite different. From a personnel viewpoint, the most important thing is the
accessibility of the information, the reporting and analysis tools. Although
reports are not unimportant to the payroll department, of much greater
significance is data collection, the ease and accuracy with which time and pay
data are input. Debbie Monk, payroll product analyst with PWA, says, “Payroll
is about getting accurate information in, whereas personnel is about getting
useful information out.”

is also a difference in the views taken by payroll and personnel departments of
the same data recorded in their systems, as illustrated by asking them to
provide headcount figures for the same date. Personnel will exclude any staff
who have left before that date; payroll will continue to include them until the
end of the pay period.

the payroll department needs to know that a new employee has started or that an
employee is off sick on the day it happens. It is for these reasons that
payroll people will argue that payroll records should always be created first
and only afterwards reflected in the personnel system.

the changes

legislation that has impacted on payroll systems during 2000 includes the
Scottish Variable Rate, tax credits and student loan deductions, as well as
ongoing changes to the calculation of NI contributions. So how do software dev-
elopers approach the design and implementation of new statutory requirements?

starting point is close involvement with the Revenue’s consultation process”,
explains Bob Nitsch, product planning manager for RebusHR. “We can give our
views on their proposals and get an early view on the direction the changes are
likely to go.”

Snell, sales and marketing director of KCS, describes the next stage. “We send
our development and quality control and help desk staff update Revenue events
and then keep a close watch on the Revenue’s website to get as much information
in advance as possible. The precise programming routines are published
periodically in the Revenue’s notes for payroll software developers. At that
point we start to define our own development specs and involve specialists and
customers as appropriate.”

is involved in putting a development specification together? Hugo Fair of
Software for People believes it not just a matter of following the Revenue’s
technical routines.

take an overview of the new rules because it is important from a design point
of view to allow for potential changes in the future,” he says. “We also check
carefully to see how the users are going to administer the rules, where they
will get the information from, whether it will be input for individual
employees or in bulk, whether the input requires validation and how we can
reduce the users’ workload.”

of PWA stresses the need for adequate testing. “We work closely with the
development team until we are happy with the design,” she says. “Then the new
system is tested thoroughly, using the test data and results provided by the
Revenue and IMIS Software Evaluation Service. Only when we are completely
satisfied is the enhancement released to the users. The process works well
until, as happened last February, the Revenue changes its mind on the rules at
the last moment.”

last comment refers to the ongoing changes to the calculation of NI
contributions through the payroll. The Revenue is raising the earnings
threshold at which contributions start to be paid in three stages, as part of
its objective to simplify the contributions system.

second stage of this process took place in April 2000 but, at the last minute,
the Revenue caused widespread confusion among developers by changing a critical
rule affecting the NICs rebate for employees in contracted-out employment. Many
developers had completed their year-end updates and not all were able to make
the necessary corrections in time for the start of the new tax year

as Nitsch comments, “The Revenue and its many departments are getting their act
together and trying to release information as early as possible.” For example,
developers were given the calculation routines for tax credits a year in
advance. Unfortunately, this does not always mean all developers give proper
thought to the usability of their software when automating new legislation.

2000, the Revenue defined, for the first time, a set of payroll software
standards. The object was to encourage developers to address the payroll needs
of small and new employers and, to that end, an annual accreditation process
has been introduced. So far, two payroll software packages have been accredited
by the Revenue’s Payroll Support Unit as processing payroll accurately and meeting
the standards.

standards, however, define only what is necessary to comply with tax and NICs
legislation and do not address the design of payroll systems, such as the
validation of input and ease of use. These issues are illustrated by the manner
in which the payment of tax credits has been introduced into payroll systems
over the past year (see box).


employers with specialist software to manage the annual P11D reporting of
expenses and benefits have to cope with significant changes prompted by the
extension of Class 1A NICs to most benefits. From April 2001, these systems
must also cope with the reporting of car CO2 emission levels on P46(Car) forms,
in preparation for the new method of taxing company cars from April 2002.

the final phase of the restructuring of NICs is in place in April, payroll
departments will start to address stakeholder pension deductions and their
payment to the pension providers. There is much change for payroll departments
to manage over the coming years and there is no sign of an end to it. As
Michael Howard, MD of Frontier Software, puts it: “Continuous change is a pain,
but it keeps us in business, so keep it coming.”


have been responsible for paying awards of Working Families’ Tax Credit and
Disabled Person’s Tax Credit since April 2000. There are about 1.2 million
awards in payment and the administration has become a major activity for many
payroll departments. As defined by the Revenue, the calculation of tax credits
is based on three of the four pieces of information given on start notices
issued by the Tax Credit Office, namely the start and end dates of each award
and the daily rate of payment. The fourth item is the total value of the award.

set up an award, some developers have done the minimum necessary, requiring
only the three items to be input. However, it would be so easy to make a keying
error that could result in an award being paid for longer than it should or
being paid at the wrong daily rate.

minimise this, other developers’ systems calculate the total value of the award
from the basic three items, so it can be checked visually against the value
shown on the start notice. Such basic validation shows a desire not simply to
comply with the Revenue’s specifications but to consider the practical needs of
payroll users.

paying lip-service to validation, some developers give a number of excuses for
a basic implementation. A common one is, “We had so many other changes to make
at the year end, we only had time to do the basics”, despite the fact that the
Revenue specification was issued a year in advance.

explains, “Our user group gives us feedback and we make changes twice a year.”
The operation of payroll, however, demands accuracy of input, and appropriate
validation should be fundamental to any implementation of a Revenue

Congreave is a writer and lecturer, specialising in payroll legislation,
systems and services. He also maintains the web-based PayPerShop directory of
suppliers of payroll and personnel related products, software and services

and trends affecting payroll function


New tax tables in both April and May

Near-abolition of married couple’s allowance

Introduction of higher earnings threshold for employee NICs, with resulting
changes to forms and payment of NICs rebates to contracted-out employees

Extension of Class 1A NICs to most benefits-in-kind

New income tax and NICs rules for “IR35” service companies

Payment of tax credits through the payroll

Deduction of student loans through the payroll

Systems capable of handling Scottish Variable Rate

Changes to charity payroll-giving schemes


Changes to P11D reporting requirements for beneficial loans, childcare,
commuting by disabled workers, workplace and mixed-use benefits, and welfare

Promotion by Inland Revenue of “payroll cleansing” for benefit fraud detection

to minimum wage rates

48-hour working week and night-time working exemption for young workers expires

Introduction by Inland Revenue of payroll standards and accreditation of
payroll suppliers

Income tax and NICs relief on purchase of partnership shares through the
payroll Revenue clampdown on avoidance of NICs aggregation

Change to NICs liabilities on exercise of unapproved share options

Changes to Statutory Maternity Pay entitlement


Single earnings threshold for employer and employee NICs

Introduction of Children’s Tax Credit

“Deemed remuneration” reporting by “IR35” service companies

Changes to employer and third-party NICs liabilities on Taxed Award Schemes

Payroll deductions for stakeholder pension schemes, and payment to scheme

Increases to authorised mileage rates for smaller cars


Year-end reporting (P14s, P35 and P11Ds) over the Internet

New reporting and payment procedures for Class 1A NICs

Early settlement of NICs liabilities on some unapproved share options

Further increases to minimum wage rates

New 40-hour weekly working and night limits for young workers


Car benefit charges based on CO2 emission levels, with immediate administrative

Introduction of statutory mileage rates

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