Thepersonnel and payroll functions may seem different but there are areas ofoverlap – especially the information their systems hold about staff. But thisinformation differs a great deal between the two functions, and this isreflected in software design. Ian Congreave reportsThereis a general view among payroll people that their colleagues in the personneldepartment don’t understand them. One commonly expressed reason for this is thatpayroll work is driven entirely by contractual and statutory deadlines –neither employees nor the Collector of Taxes can be paid late.Anotherfactor is the nature of the legislation within which the payroll functionoperates. Most of the requirements set out in the Employment Rights Act 1996are to do with the protection and enforcement of employees’ rights, with only afew affecting payments through the payroll, such as the “time off with pay”provisions. The effect of employment legislation on personnel departments islargely procedural, involving the manner in which employees’ rights andbenefits are administered.Bycontrast, the payroll function operates principally within the requirements ofthe Income Tax (Employments) Regulations 1993, various social security Acts andregulations, 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.Thereare areas of overlap, however. Compliance with the minimum wage and workingtime rules is a joint payroll and personnel exercise. The annual reporting ofexpenses and benefits, and the calculation and payment of Class 1A NationalInsurance contributions liabilities, can be carried out by either function, orboth.Thefrequency and scale of legislative change is another important difference.Changes that affect personnel are spasmodic – irregular but significant whenthey occur. Examples are the maternity and parental leave and the trade unionrecognition provisions of the Employment Relations Act 1999. Much of the changeoriginates in Europe, such as the Part-time Workers Regulations 2000 and theupcoming Fixed-term Workers Regulations. Payroll-relatedlegislation, however, changes annually and is largely predictable, as a resultof each year’s Finance Act provisions. They are extensive enough to require theInland Revenue to reissue its books and key forms each April, and involvepayroll departments in two annual implementations, one from 6 April and theother from 18 May. Also, the range of compliance responsibilities was extendedlast year to include the payment of tax credits and the recovery through thepayroll of student loans.Allthese differences are reflected in the design of software systems aimed atpayroll and personnel departments. What payroll and personnel systems have incommon is the information they hold about the same staff. Butthe design features of these systems and the way in which they are used arequite different. From a personnel viewpoint, the most important thing is theaccessibility of the information, the reporting and analysis tools. Althoughreports are not unimportant to the payroll department, of much greatersignificance is data collection, the ease and accuracy with which time and paydata are input. Debbie Monk, payroll product analyst with PWA, says, “Payrollis about getting accurate information in, whereas personnel is about gettinguseful information out.”Thereis also a difference in the views taken by payroll and personnel departments ofthe same data recorded in their systems, as illustrated by asking them toprovide headcount figures for the same date. Personnel will exclude any staffwho have left before that date; payroll will continue to include them until theend of the pay period. Conversely,the payroll department needs to know that a new employee has started or that anemployee is off sick on the day it happens. It is for these reasons thatpayroll people will argue that payroll records should always be created firstand only afterwards reflected in the personnel system.Handlingthe changesNewlegislation that has impacted on payroll systems during 2000 includes theScottish Variable Rate, tax credits and student loan deductions, as well asongoing changes to the calculation of NI contributions. So how do software dev-elopers approach the design and implementation of new statutory requirements?“Thestarting point is close involvement with the Revenue’s consultation process”,explains Bob Nitsch, product planning manager for RebusHR. “We can give ourviews on their proposals and get an early view on the direction the changes arelikely to go.” AlanSnell, sales and marketing director of KCS, describes the next stage. “We sendour development and quality control and help desk staff update Revenue eventsand then keep a close watch on the Revenue’s website to get as much informationin advance as possible. The precise programming routines are publishedperiodically in the Revenue’s notes for payroll software developers. At thatpoint we start to define our own development specs and involve specialists andcustomers as appropriate.”Whatis involved in putting a development specification together? Hugo Fair ofSoftware for People believes it not just a matter of following the Revenue’stechnical routines. “Wetake an overview of the new rules because it is important from a design pointof view to allow for potential changes in the future,” he says. “We also checkcarefully to see how the users are going to administer the rules, where theywill get the information from, whether it will be input for individualemployees or in bulk, whether the input requires validation and how we canreduce the users’ workload.”Monkof PWA stresses the need for adequate testing. “We work closely with thedevelopment team until we are happy with the design,” she says. “Then the newsystem is tested thoroughly, using the test data and results provided by theRevenue and IMIS Software Evaluation Service. Only when we are completelysatisfied is the enhancement released to the users. The process works welluntil, as happened last February, the Revenue changes its mind on the rules atthe last moment.”Monks’last comment refers to the ongoing changes to the calculation of NIcontributions through the payroll. The Revenue is raising the earningsthreshold at which contributions start to be paid in three stages, as part ofits objective to simplify the contributions system. Thesecond stage of this process took place in April 2000 but, at the last minute,the Revenue caused widespread confusion among developers by changing a criticalrule affecting the NICs rebate for employees in contracted-out employment. Manydevelopers had completed their year-end updates and not all were able to makethe necessary corrections in time for the start of the new tax yearHowever,as Nitsch comments, “The Revenue and its many departments are getting their acttogether and trying to release information as early as possible.” For example,developers were given the calculation routines for tax credits a year inadvance. Unfortunately, this does not always mean all developers give properthought to the usability of their software when automating new legislation.During2000, the Revenue defined, for the first time, a set of payroll softwarestandards. The object was to encourage developers to address the payroll needsof small and new employers and, to that end, an annual accreditation processhas been introduced. So far, two payroll software packages have been accreditedby the Revenue’s Payroll Support Unit as processing payroll accurately and meetingthe standards. Thestandards, however, define only what is necessary to comply with tax and NICslegislation and do not address the design of payroll systems, such as thevalidation of input and ease of use. These issues are illustrated by the mannerin which the payment of tax credits has been introduced into payroll systemsover the past year (see box).ThefutureThoseemployers with specialist software to manage the annual P11D reporting ofexpenses and benefits have to cope with significant changes prompted by theextension of Class 1A NICs to most benefits. From April 2001, these systemsmust 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.Afterthe final phase of the restructuring of NICs is in place in April, payrolldepartments will start to address stakeholder pension deductions and theirpayment to the pension providers. There is much change for payroll departmentsto manage over the coming years and there is no sign of an end to it. AsMichael Howard, MD of Frontier Software, puts it: “Continuous change is a pain,but it keeps us in business, so keep it coming.”ValidationEmployershave been responsible for paying awards of Working Families’ Tax Credit andDisabled Person’s Tax Credit since April 2000. There are about 1.2 millionawards in payment and the administration has become a major activity for manypayroll departments. As defined by the Revenue, the calculation of tax creditsis based on three of the four pieces of information given on start noticesissued by the Tax Credit Office, namely the start and end dates of each awardand the daily rate of payment. The fourth item is the total value of the award.Toset up an award, some developers have done the minimum necessary, requiringonly the three items to be input. However, it would be so easy to make a keyingerror that could result in an award being paid for longer than it should orbeing paid at the wrong daily rate. Tominimise this, other developers’ systems calculate the total value of the awardfrom the basic three items, so it can be checked visually against the valueshown on the start notice. Such basic validation shows a desire not simply tocomply with the Revenue’s specifications but to consider the practical needs ofpayroll users.Whilepaying lip-service to validation, some developers give a number of excuses fora basic implementation. A common one is, “We had so many other changes to makeat the year end, we only had time to do the basics”, despite the fact that theRevenue specification was issued a year in advance. Anotherexplains, “Our user group gives us feedback and we make changes twice a year.”The operation of payroll, however, demands accuracy of input, and appropriatevalidation should be fundamental to any implementation of a Revenuespecification.IanCongreave is a writer and lecturer, specialising in payroll legislation,systems and services. He also maintains the web-based PayPerShop directory ofsuppliers of payroll and personnel related products, software and services(www.paypershop.com)Legislationand trends affecting payroll functionApril2000 –New tax tables in both April and May–Near-abolition of married couple’s allowance–Introduction of higher earnings threshold for employee NICs, with resultingchanges 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 schemesDuring2000–Changes to P11D reporting requirements for beneficial loans, childcare,commuting by disabled workers, workplace and mixed-use benefits, and welfarecounselling–Promotion by Inland Revenue of “payroll cleansing” for benefit fraud detection increasesto 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 ofpayroll suppliers–Income tax and NICs relief on purchase of partnership shares through thepayroll Revenue clampdown on avoidance of NICs aggregation–Change to NICs liabilities on exercise of unapproved share options–Changes to Statutory Maternity Pay entitlementApril2001–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 schemeproviders–Increases to authorised mileage rates for smaller carsDuring2001–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 April2002–Car benefit charges based on CO2 emission levels, with immediate administrativechanges–Introduction of statutory mileage rates Previous Article Next Article Other side of the coinOn 13 Mar 2001 in Personnel Today Comments are closed. 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