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How to Conquer Payroll Challenges in 2021


Payroll is a highly sensitive and business-critical process, and it’s not one that’s made particularly easy. Information from the CIPP outlines that there are at least 174 regulations affecting payroll in the UK. So to say that staying on top of payroll legislation is a time-consuming and complex task is an understatement.

No-one could have foreseen the biggest challenge for organisations in 2020; the Coronavirus pandemic. In under 24 hours, changes to the law would alter the way in which the global workforce carried out their jobs for the foreseeable future. Payroll professionals were quickly recognised as key workers and responsibilities and challenges were immediately placed on HR and payroll teams. Resilient and professional, payroll teams have single-handedly kept the global workforce paid; correctly and on-time, throughout some of the most challenging times.

The overnight change in the way in which the world works also served to highlight gaps and discrepancies within some payroll departments. Most notably, organisations with small teams or employees that oversee a multitude of responsibilities including payroll, such as HR admins, were most affected by the changes that unfurled.

Whilst we hope never to experience the events of 2020 again, today the team at Mitrefinch discuss what we understand as the biggest challenges facing payroll in 2021 and beyond, and how you can overcome compliance issues, remote working, and the technical demands of the new normal.

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Challenge #1: Managing fast-changing compliance and regulation requirements

HMRC had a number of legislative updates that were intended to be put in place throughout 2020. Some of these were deferred as a result of the pandemic, whilst others provided a response to the challenges faced by organisations in 2020. Key legislative updates from the past year, and the coming months, include:

Redundancy protection for employees on maternity leave and other new parents: New limits on employment statutory redundancy pay come into effect on the 6th April 2021. This means that employers who dismiss employees for redundancy must pay those with 2 years of service an amount based on that employee’s weekly pay, length of search, and age. From the 6th of April, the maximum weekly pay amount will be £544.

National Living Wage: will increase by 2.2% from £8.91 per hour from April 2021, and the minimum age for eligibility will be reduced from 25 to 23

IR35:Due to come into effect for the private sector in April 2020, but will now come into effect in April 2021, instead.

Gender Pay Gap Reporting: In 2020, the Government suspended the enforcement of the Gender Pay Gap Report for the 2019/2020 financial year, allowing for a 6-month extension on delivery of these reports. Employers must now report their 2020/2021 Gender Pay Gap information using data from the 5th April 2020.

As the dust has started to settle, and the workforce has grown acclimatised to remote working, it is expected that the changes that were initially put on hold will now be rolled out in the near future.

On top of this many countries, the UK included, have formulated coronavirus job retention schemes (CJRS) with the aim of keeping businesses open and preventing mass redundancies and unemployment.


The CJRS is a much-needed life raft for many businesses and individuals here in the UK, but constant changes to the guidelines and eligibility requirements present a challenge for those in payroll. At the time of writing this guide, the CJRS had been extended from March 2021 to September 2021, and the details have been amended more than 50 times. Organisations have experienced notable edits such as the introduction of flexible furlough (and subsequently, how to calculate flexible furlough) and it’s the global payroll teams that are faced with the difficulty of remaining compliant and up to date with these changes.

All of these updates were of a critical and comprehensive nature and required payroll teams across the nation to both understand and comply immediately or face the possibility of committing furlough fraud.

Umbrella employment changes

Off-payroll reforms for the private sector (IR35) is a very real and present obstacle for payroll teams right now.

Despite having been in place for over twenty years, IR35 has come under heavy criticism from tax experts and the wider business community. The legislation has caused plenty of headaches for genuine small businesses due to its significant financial impact. It can reduce workers’ net income by up to 25%, costing the typical limited company contractor thousands of pounds in additional income tax and NICs.

This is why the original IR35 legislation is now being replaced with the new Off-Payroll Tax. Off-Payroll Tax was introduced to the public sector in April 2017 and the rollout was planned for the private sector in 2020 but was delayed until the 6th April 2021.

As a result of these changes, many contractors are moving to the use of umbrella companies. The Association of Professional Staffing Companies (APSCo) conducted some research amongst recruitment companies and found that 91% of respondents expect umbrella company usage to soar in response to the private sector changes.

Although umbrella employment seems to be a popular choice for contractors, the lack of regulations governing such organisations is of major concern to payroll teams, who were also discouraged by the Government’s insufficient knowledge of the industry. Difficulties were experienced by payroll teams when it came to eligibility for the CJRS.

Contractors should choose their umbrella carefully as there are varying standards within the sector, and even some tax avoidance schemes disguising themselves as umbrella companies – negatively impacting both those who fall victim to this and the reputation of umbrella companies as a whole.

It is estimated that between 5%-10% of those receiving furlough pay were in fact, ineligible to do so. HMRC expects employers to check their claims and repay any excess amount, so it is likely that even when the CJRS finishes in September, payroll staff may still have more work to do.

The Solution

To help overcome challenges faced by changes in regulations, many businesses may invest in more payroll training and qualifications for their employees as well as upskilling others. Some businesses may begin providing compulsory compliance training to help with business continuity going forward.

If your current global payroll is being managed manually, it is likely that you are already experiencing the challenges that come with this. As these changes show no signs of slowing down, payroll and compliance are not expected to become any easier, making now the perfect time to examine your current payroll processes.

Enlisting the help of a cloud-based payroll service can serve as a great advantage when it comes to remaining compliant and accurate with distributing the correct pay to employees. With payroll experts consistently updating the software to include all of the latest legislation changes, users can substantially reduce the risk of non-compliance as these are automatically updated within the payroll service.

Having access to in-country experts is more important than ever, and technology with real-time views of your payroll across all countries and currencies is invaluable.


Challenge #2: Preparing for remote and on-site workers

The surge in remote working ignited by the pandemic has resulted in many payroll teams being more spread out geographically than they were 12 months ago. It is, therefore, necessary for the implementation of a solution that allows every payroll professional to access the data they need at all times and from whatever their location might be.

Due to the easy access and sharing of business-critical data that the cloud enables, it is expected that payroll will take on a more strategic position in reporting and compliance. One example of where cloud-based payroll services will put businesses at an advantage is the government’s plans to introduce compulsory reporting on businesses’ ethnicity pay gaps in the near future.

This reporting task will require payroll and HR teams to collect accurate and timely pay gap information, with the aim of informing business strategy and ensuring compliance. Having access to real-time data in the cloud makes these tasks significantly easier to do.

Embracing the advantages of the cloud

As is the case with numerous cloud-based applications, cloud-based payroll software has grown exponentially in recent years, with 38% of organisations now embracing the cloud in this way according to CIPP. This consistent growth suggests that 2021 is likely to be the year that cloud-based payroll becomes a business essential.

Dealing with complex calculations for flexible workers

Whilst the increased flexibility that employers now offer their staff is considered by many to be a perk, it does have a direct impact on payroll departments who then have to deal with complex calculations for working out pay and holiday entitlement relating to working arrangements.

Information gathered from payroll and HR professionals by CIPP in the Future of Payroll Research Report 2020, found that 67% of respondents had experienced more flexible working requests from members of staff as opposed to 33% who stated that they hadn’t experienced this. Whilst this may come as a surprise to some, the data in the report clearly shows that, even before the pandemic, working arrangements were evolving rapidly. Advancements with the gig economy, zero hours contracts and a bigger focus on work life balance, the standard 9-5 working day will become a thing of the past.

An impressive 82% of respondents reported that working from home is a style of working that their businesses allowed day-to-day. This was closely followed by 74% of respondents confirming that their employers offered flexible hours within set core hours, and 51% stated that their business offered the option of working compressed hours.

Prior to the pandemic, payroll teams often found themselves exempt from this level of flexibility due their crucial role within their organisations. It was a long-held belief that payroll teams need to be in the office, but up and down the country, payroll professionals have demonstrated that they can work just as effectively, if not more so, remotely and from home.

In order to maintain this newfound flexibility and productivity, organisations can lead by example by introducing cloud-based payroll software. This allows payroll duties to be carried out remotely without any disruption to the business, or workers. All that is required is a connection to the internet in order to access all of the relevant information, run payroll accurately and ensure the right people are paid on time.

The Solution? Consider epayslips and centralised document management

Since April 2019, employers have been required, by law, to produce payslips to all workers that include a breakdown of hours worked if there was any variation in those hours. This is one of many mandatory changes related to the information provided on payslips that we are likely to see in the near future.

Embracing a modern cloud-based system that is configured to provide data at a granular level can enable businesses to stay up to date with payroll legislation more easily and accurately.

Mitrefinch payroll software is HMRC-recognised, RTI compliant and handles everything from easy auto-enrolment to password-protected payslips. You can also reduce processing time and the possibility of human error through the automation of complex calculations, as well as the ability to produce ad-hoc reports whenever they’re needed.

In addition to this, our software allows users to simplify labour-intensive tasks such as pension auto-enrolment, inspiring a more productive workforce and saving your business time.


Challenge #3: Supporting your workforces’ financial wellbeing

The financial implications of the coronavirus pandemic may continue well into 2021 and beyond and the fallout from this will have a direct impact on the number of people experiencing financial stress. EY’s recent report found that almost three-quarters of the UK workers (73%) surveyed say they find it “challenging to meet everyday expenses” or worry about not being able to meet them, and half of these have faced a financial shortfall between pay periods.

Financial stress doesn’t just affect employees as EY outlines that financial stress was estimated to cost £300 billion in lost productivity to UK employers.

The solution? On-demand pay will gain traction

On-demand pay enables employees to access the wages they have accrued on demand. With Flexipay, employees don’t need to wait until payday; they can now draw down pay when they need it. As the employer, you set the rules, and your workforce can access their earned wages when they need it most.

This intelligent solution can help with alleviating the burden of waiting for paydays, positively affecting the mental health and productivity of staff. Additionally, introducing on-demand pay within your workforce can help consolidate the trusting relationships between employer and employee, which is crucial in an uncertain economy and landscape.


Challenge #4: Adapting to new technology

Adapting to new technology is now a part of everyday life, from the way we shop online to our devices and apps – technology that allows us to do our day-to-day tasks is changing all the time and payroll is no exception.

These advancements are further highlighted within examples such as HMRC’s strong focus on digitalisation, where they are no longer providing paper-based stationery such as P60s and P45s. Employers must now provide these documents online, or print them directly onto plain paper.

Historically, technological advancements had been somewhat met with scepticism as many employees feared that automation and artificial intelligence (AI) could replace the need for humans in payroll. In contrast to this, the recent results of the Future of Payroll survey illustrated that this perception is dramatically changing, and that payroll teams are now in fact embracing AI and automation in the workplace.

Within the survey was a selection of questions focused on whether or not technology could enhance the payroll sector in the future plus how far technologies that have already been implemented have changed the way payroll departments work.

When asked where payroll software was currently hosted, 38% of respondents stated that they used cloud-based software, followed by 37% stating that it was hosted on-site, and then 25% confirming that payroll software was hosted on a client-server.

In relation to receiving queries into the payroll department, most respondents said that they had seen little change and that emails and phone calls were still the first points of contact for those wanting to speak with payroll.

This highlights that despite technology rapidly progressing and cropping up in the world of payroll, employees still prefer speaking to a person if they have any questions, especially when their queries relate to something as important as their pay.

Finally, 59% of respondents recognised that advances in technology would solve problems and allow individuals to focus on more strategic aspects of their role.


In summary

The main challenges facing payroll teams across the UK are remote working, managing compliance and adapting to new technologies.

There has been a consistent theme within the solutions posed to these challenges, which is that embracing technology is the best way for payroll professionals to drive productivity, remove inefficient paper-based processes and maintain compliance with the latest rules and regulations.

Cloud-based technology is writing the future for payroll and HR teams. Embracing these new ways of working and meeting these challenges head-on, is key to the ongoing success of your payroll team, and lends itself to setting your organisations leading by example.


To find out how to take the pain out of payroll, book a free online demonstration with a member of the team today to discuss how we can help you automate and streamline your payroll processes.

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Mitrefinch needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at any time. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, please review our Privacy Policy.

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