Having a regular payroll routine of a single frequency and type, with no complications, is a manageable process. Add in holiday, benefits in kind, statutory leave and bonuses, and the complications start to increase. Many organisations have an even more complex layer, where different employees are paid in different periods, with weekly payroll, monthly payroll, and contractors suddenly providing payroll teams with a technical challenge.
This guide looks at the different layers of complexity which multiple pay schedules generate and how a managed payroll service can help alleviate the burden.
Please speak to the team about any of the topics raised below. Our experts can help.
The challenge of running multiple pay schedules instead of one
The main challenge of multiple pay schedules vs a single one is often down to the way they interact. When mistakes occur, your timing for correcting them often depends on the gap until the next payroll run. Consider the following example:
- Administration and management staff are paid monthly
- Warehouse and packing staff are paid weekly
- Contractors want to be paid on invoice, but should be assessed for IR35
For monthly staff, a mistake made on their payroll has roughly four weeks to be identified and then corrected, ready for the next run. Any mistakes made for warehouse or packing staff will need to be corrected within the week. The contractor wouldn’t normally be paid by payroll, but if IR35 applies, they will need to be added to payroll with the relevant deductions for tax and NIC. If this is missed by the organisation and fails an audit by HMRC, the organisation will be penalised.
The deadlines for running these different schedules often land within a few days of each other. This means time for finance teams to sign-off and time to check bonuses and commissions, including some at hourly rates and some based on annual salary. Holiday pay accrual for hourly or part-time workers may run at a different pro rata rate than for monthly salary, and calculations for maternity leave depend on wages paid over a certain period. RTI submissions will be required across all pay schedules, which means there is a short window for checking and approving each schedule.
All of this creates pressure on the payroll team, who may already be stretched beyond their resources, leading to inaccuracies and mistakes. Many payroll teams rely on outsourced managed payroll services providers, such as MSP Payroll, to help review, execute or assist with running multiple schedules.
Weekly Pay: A small window to correct errors
A weekly payroll run compresses issue recovery time to just one week. Often, the issues that arise from a weekly pay frequency come down to the processes used to collect working time information. For instance:
- Timesheets: These usually require sign-off before submission. In organisations with manual timesheet recording, these can be handed in too late. For digitised timesheets, the usual issue is making sure line managers are signing them off in the system before the payroll cut-off date. Sheets that are submitted too close to the cut-off don’t leave enough time for corrections if required.
- Multiple filings in a month: A weekly payroll run will need to be submitted four or five times per month, which means if there is an error on one run and it isn’t identified, then it could be compounded when it occurs again on subsequent filings.
- Commissions and Bonuses: Weekly commission payments for retail staff, or tips for waiting staff, are often included in weekly payroll. Receiving the correct information, signed off by line management, requires a tight process in such a small window and will often be subject to queries from staff.
Working with a managed payroll service means you are supported by an organisation that handles dozens of weekly payroll runs in parallel. They will understand what errors and omissions to look out for, and they bolster the capacity of your payroll team to ensure you have the resources to deliver for the organisation every week. Running weekly payroll alongside other schedules then becomes a matter of routine rather than a scramble.
MSP Payroll can help with any weekly payroll requirements. We provide support tailored to your organisation; find out more about our hybrid payroll service.
Monthly Pay Schedules: The exceptions causing issues
Monthly pay is, on paper, relatively straightforward. An annual gross salary is divided by twelve, and then tax and NIC are applied. The complexities occur when you are also running weekly schedules, with different tax and NIC requirements, PLUS you have to account for monthly exceptions as well.
For instance, holiday pay calculations for weekly and monthly pay are different, with monthly salaries usually calculated by days worked, compared to weekly, which is often hours. SMP, SPP and ShPP will also need to be added where applicable, and the complexity of statutory pay takes time to check accuracy, which is precious when resources are tight.
There are also bonuses and commissions, plus, depending on the employee’s role and seniority, there may be benefit-in-kind calculations for benefits such as company cars and health insurance. Many workers may have a student loan payment to account for. Finally, there are pension contributions, ensuring these are added for eligible employees in both weekly and monthly pay periods.
In isolation, there are a number of complexities that cause errors on a weekly or monthly basis. But when you run both together, the chances of errors or omissions occurring, requiring fixes in RTIs and putting even more pressure on time, increase dramatically.
A managed payroll service can be implemented to help alleviate some of the complexity. For instance, you may require all holiday pay, statutory pay and pension calculations completed or reviewed by your payroll service partner. Or you may contract the payroll partner to run payroll itself, freeing your team up to handle timesheet collection, benefit-in-kind calculations and communications with employees. A partner, such as MSP Payroll, can be plugged into your process wherever you need them.
Contractors and IR35
Normally, contractors wouldn’t appear on payroll’s radar. They usually provide an invoice that is paid by the purchasing or supplier department, and NIC and income tax are managed entirely by the contractor.
If a contractor is assessed for IR35 and is deemed to be an off-payroll worker, then they will need to have National Insurance Contributions and tax deducted from their pay as per a normal worker. These contractors are then paid through payroll, rather than via the purchasing department.
Payroll teams will need to ensure they maintain close communication with any department that regularly uses contractors, and be informed of any contractors who have been assessed as off-payroll. In many organisations, the process of hiring contractors is left to individual departments and is often required to fill gaps in resources or skill sets. This means contractors subject to IR35 fall through the net.
The responsibility for IR35 lies with the organisation, not the contractor. This means if any errors are picked up, or if HMRC audits compliance and finds an issue, then payroll teams will need to recover the underpaid tax and NIC, plus interest, backdated from the start of the contract.
This is a specialist discipline and one that a managed payroll services provider, such as MSP Payroll, can help with. They can assist by correcting errors and relieving the pressure from other payroll areas so that payroll teams can spend more time communicating internally and gaining information required to stay compliant with IR35.
How can MSP Payroll help?
Our experts can provide comprehensive support for payroll teams processing multiple payroll schedules. This could include:
- A flexible hybrid outsourced payroll service to suit your requirements
- Facilitating BACs payments for your organisation to employees
- Calculating or reviewing payroll submissions before they are completed
- Pro-rata calculations for exceptions such as overtime or seasonal employees
- Consultancy support for implementing multiple payroll schedules effectively
- Corrections and error support with RTIs and HMRC
- We are specialists in all payroll regulations and provisions, including SSP, SMP, pensions, seasonal payments, PAYE and National Insurance Contributions.
Contact us here if you would like to discuss implementing payroll support.
Managing multiple payrolls: Frequently Asked Questions
Can an employee be paid through both a weekly and a monthly payroll?
Not safely; no. An employee should only be included in one payroll period at any one time. If an employee changes payment frequency, then you will need to transfer the year-to-date information across to the new schedule, not run them concurrently. If an employee receives a weekly bonus alongside a monthly salary, then calculate the bonus weekly and include it in their monthly payment; don’t set up a weekly period alongside the monthly one.
Is there a maximum number of payroll schedules I can use?
From a practical point of view, it’s better to keep your payment schedules as simple as possible. Each schedule will require assessments, reviews and calculations for bonuses, BiK, and statutory payments, so the more schedules you have, the greater the complexity for your payroll team and the more difficult it is to maintain payroll accuracy. Usually an organisation can work effectively with two or three payroll schedules.
What is a hybrid payroll strategy?
A hybrid payroll strategy is a flexible way to incorporate a Payroll Services Provider, such as MSP Payroll, into your organisation. You retain complete ownership of the payroll process while benefiting from increased resource capacity, consultancy, support and expertise. For more information, visit our Hybrid Payroll page.