Everything you wanted to know about RTI Payroll IDs but were afraid to ask

Payroll IDs (HMRC)

Whilst appearing deceptively simple, HMRC RTI Payroll IDs are actually quite complex! This article attempts to explain how they work and how to avoid any issues.

Most employees only have a single job and if this were the case, RTI payroll IDs might have never existed. However:

  • Employees can have more than one job with the same employer and
  • HMRC treats the tax records of anyone re-employed separately for each “employment” in a tax year.

RTI payroll IDs are not merely text labels – instead, HMRC uses them to track each job or employment. The easiest way to think about payroll IDs is to think about each payroll ID meaning one employment:

Payroll ID = Employment

Manually entered or automatically generated?

Each payroll software handles payroll IDs differently. Some systems require the payroll administrator to enter these manually, potentially this can be the company Works ID. Other systems automatically generate the payroll ID. It is important to understand how your system generates the payroll ID i.e. what is sent to HMRC in each FPS (Full Payment Submission).

A Payroll ID can be 35 characters long (any alphanumeric). Even if you don’t send a payroll ID, then HMRC assumes the default – we call this the None payroll ID. Each payroll ID must be unique for each employment. This also means you must know which previous Payroll IDs were used, and when they were used, in case you re-employ someone.

How HMRC process YTD figures and payroll IDs

Every time HMRC receive an FPS with YTD (Year To Date) totals for an employee, they update the employment record with new YTD figures. As long as you always send the same payroll ID (or never use a payroll ID ie. the None one), everything will be dandy as HMRC will have a single employment record which is successively updated. Here is a simple example before assuming 7,000 YTD and after an FPS with a new 1,000 payment and 8,000 YTD:

EmployeePayroll IDYTD
John SmithNone7,000
Before FPS Sent
EmployeePayroll IDYTD
John SmithNone8,000
After FPS sent

Now, if HMRC receives a new Payroll ID for this employee in an FPS, their system is programmed to add a 2nd employment record. This record has the new payroll ID and the new YTD figure. Below is an example, where a new Payroll ID is sent with the label ‘2’:

EmployeePayroll IDYTD
John SmithNone7,000
John Smith28,000
Incorrect Payroll ID in FPS

The system now assumes that the employee has been re-employed or they have a 2nd job. Note how all figures are incorrect! Tax codes and your PAYE bill will then be calculated based on the two employments. If this was intended, then life is good. However, if the 2nd payroll ID was sent in error, then life becomes not so good.

Changing payroll software

If you change payroll software or take over payroll from someone else, you really need to understand payroll IDs. If you inadvertently make a mistake, every payroll record will be duplicated and your PAYE bill will almost certainly be wrong. Because RTI is an entirely automated system, it may take many phone calls, corrective submissions and a lot of pain and misery to resolve!

If you operate parallel runs, and the new payroll software uses different payroll IDs, then you need to ensure that the first live run changes the payroll ID.

Changing Payroll IDs

HMRC provide a fully automated way to change payroll IDs in the FPS. If used correctly this will avoid any issues. If you want to send a new payroll ID, your payroll software must send ‘Yes’ in a ‘Payroll ID changed indicator’ for each employee. The HMRC system will then automatically keep the original employment record but simply change (update) the payroll ID label from the old to the new.

If an employee has more than one job, then you must also send the Old payroll ID. This is because HMRC must know which one you are changing. If you do not supply it, and they have more than one job, then you are back to the duplicate payroll IDs, incorrect PAYE bill and weeks of pain and misery. Below is an example of a payroll ID changed from ‘2’ to ‘ABCDE’:

EmployeeOld payroll ID[new] payroll IDYTD
John SmithNoneNone7,000
John Smith2ABCDE1,000
Correctly updated payroll ID in FPS

Summary

Having completed multiple payroll imports, we came to one clear conclusion. If you want to avoid the issues in getting payroll IDs wrong, the only option is to select payroll software that automates payroll IDs. Here is our paiyroll® checklist to use when selecting payroll software to handle payroll IDs:

  1. Select a payroll package that automatically generates payroll IDs. As well as one less data field to enter, you can’t make a payroll error and reuse an old payroll ID. When you add a new starter or make someone a re-starter, the system will automatically send the correct payroll ID.
  2. Select a payroll package that can import all payroll IDs from your old software.
  3. Check that the payroll software can automatically change imported payroll IDs and send the new payroll IDs together with the Payroll ID changed indicators. This must be after all parallel runs have been completed and in the first live FPS for each employee (these may be different).
  4. Ensure that the software lets you use a separate works ID for your own purposes. This might be for reporting (company ID) or for integration with other systems like Time and Attendance (T&A). This separates the complexity of HMRC RTI payroll IDs from your own works ID. For example, some companies have a policy that re-starters always use the same works ID – which of course would conflict with HMRC who require different payroll IDs for each employment.
  5. Because payroll IDs are critical, you should know the payroll ID is. The system should also provide a clear indication in the infrequent case that a Payroll ID changes.

Automated payroll IDs mean that duplicated records and incorrect PAYE bills are a thing of the past.

Further reading – HMRC guidance

  • If you change payroll software you must send a ‘Payroll ID changed indicator’ for every employee see here.
  • If an employee has more than one job, you must supply the old payroll ID
  • Use a different ID if you re-employ someone – see Giving your employee a payroll ID
  • HMRC video on Payroll IDs

Holiday Pay

Are you compliant with the new 52 week reference period?

Calculating holiday pay

From April 2020, the law regarding Holiday Pay for workers who do not have fixed hours or pay changed. This must now be calculated using a 52-week reference period. Unpaid weeks must not be included.

Previously, there were two methods used for holiday pay:

  1. Pay 12.07% of pay as holiday pay
  2. Calculate the average pay over 12 weeks

Unfortunately, neither of these two methods comply with the new law. In fact, the notion of rolled-up holiday pay is no longer acceptable.

All workers are entitled to 5.6 weeks paid holiday per year.

The first change is that a 52 week reference period must be used (not 12). The 52 weeks used for the calculation, can only be “paid weeks” i.e any unpaid weeks where the worker was not paid, must be ignored.

A welcome change is that employers are not be required to look back further than 104 weeks (2 years). However, because of the requirement to use 52 paid weeks, it will not be possible to only use 1 year of history – you will need to disregard unpaid weeks.

If the employer maintains 104 weeks of historical pay data and is unable to find 52 paid week, then the maximum number of paid weeks can be used. For example, you only paid the worker in 40 weeks of the last 104, then it is sufficient to use these weeks.

Importantly, the pay data used must be weekly data. You can not use 2-weekly, 4-weekly or monthly pay. If workers receive pay other than weekly, then it will be necessary to maintain records of the pay and hours for each week in order to do the weekly calculation.

How to calculate holiday pay?

While it sounds simple, the calculation is difficult to do in practice. The full details can be found here. It means:

  • Maintaining a detailed record of 104 weeks of pay data for each worker – when they were paid (date, amount).
  • Every time holiday is booked, a new weekly average must be calculated using 52 paid weeks (disregarding the unpaid weeks) looking back up to 104 weeks.
  • Only use the elements of pay that should be included for holiday pay.
  • The pay history must be detailed enough to be computed per week.
  • Once you have a weekly average, you will need to convert the weekly amount to the number of days actually taken as holiday (workers don’t often take exact multiples of weeks).

Can I do this in Excel?

Probably not as you will need programming skills. It is difficult because of the need to ignore unpaid weeks and only use 52 weeks of paid data. It is not a fixed calculation across 52 or 104 cells. An excel sheet would need to be updated each week with new pay data for every worker where the older data was removed. Furthermore, 2 payments which fall in the same week must be added together and used a single week amount.

Automating Holiday pay

The only practical way to implement the new legislation is to use payroll software which can automate this task. Holiday pay then becomes another calculation in payroll and is as easy as PAYE, NIC or Auto-enrolment. Here are the questions to ask when choosing new payroll software for holiday pay:

  1. Does it record every payment made by date in order to be able to perform the required weekly calculations?
  2. Can the software import 104 weeks of historical pay data. This is critical otherwise you will need to wait for 2-years to be compliant.
  3. Can the software import existing data from existing payroll, HR, CRM or ERP system?
  4. Does the software allow you to specify only the Pay Items that need to be included in the holiday pay calculation?
  5. If you pay monthly, 2 or 4-weekly, does the payroll software record precise weekly data?
  6. Does the payroll software keep records of each holiday booking?

These requirements are critical for automating holiday pay.

Checkout our full set of holiday pay resources here

How to Choose the Right Payroll Software for Your Company

Crunching down the numbers for payroll is no easy feat. The whole process means dealing with timesheets, attendance reports, taxes, compensation and more. Such tasks can be daunting, not to mention time consuming and liable to conflicting results.

Fortunately, there are now software solutions designed specifically to assist you in managing payrolls. In fact, a Deloitte survey says that 89% of global businesses use online payroll services to help them. This type of software can help you manage your payroll and encourage transparency between you and your employees and many more.

With so many products and services to choose from, you may find yourself at a loss with which one would best suit your business. So, before you dive right into it, there are a few things you must take into consideration first to find the right payroll system for your company.

1. Determine your business needs

First thing’s first, defining what your company has is essential. This will serve as your guide when searching for the software that will best suit your business. No solution is a one-size fits all, so you need to determine if a specific software will be able to cater to your needs.

Some payroll services can cater to large enterprises, while others can only accommodate small businesses. If you have mixed types of employees, such as part-timers, full-time workers, freelancers, etc., it is important that your software can differentiate the methods, frequencies and ways you pay them. This is also true when it comes to having different shifts and schedules within the company. You should also keep in mind the people who administer payroll and the software’s ability to conform with your company’s policies such as tax computation, compensations, overtime pays, employee benefits and others.

2. Read reviews from other companies

To narrow down your options, you can research reviews on the top payroll software online. Doing so will let you have an idea what to expect with the software and how it has (or hasn’t) helped other businesses.

Feedbacks from first-hand experiences are the best way to determine if a software is right for you. Most of the time, these are honest impressions from other business owners such as yourself. However, take care to avoid reading reviews from the software’s website itself to get unbiased opinions of its effectiveness. You can also check out lists of the best payroll software to help you with your search and decide from there.

3. Evaluate tools and features

Each payroll software has their own unique set of features and tools to cater their clients’ needs. While more tools may seem better at first glance, it doesn’t necessarily mean you will be using all of them.

There are software programs that merely organize the workflow for payroll management. Others that can do all the necessary work without manual assistance from qualified people. Some that can easily be integrated on top of other business software. Others don’t just provide services for payroll management but can streamline it with HR and accounting processes. There are those that let employees access their payroll via a local server, while others use their own mobile phones, tablets or laptops to see their salary computations.

With the diversity of functions among payroll software, it is important that their features and tools align with your company’s needs and goals.

4. Consider ease of use

The whole point of searching for payroll software is to make the whole process of managing and computing salaries and wages quicker and easier for your company. It defeats its purpose if such software requires too much resources and training just for you and your employees to figure out how to use it.

By making it navigable for beginners, anyone can jump right into the task without needing prior knowledge of the software. This can also save you from the extra cost of hiring experts for the job. Likewise, an easy to use software can lessen chances of encountering hitches along the way and thus preventing delays and waste of resources.

5. Gauge pricing

Payroll services pricing varies depending on the features, functions, and capabilities a software has. With the wide range of options to choose from, price is one of the most crucial parts in your decision-making. After all, everyone wants to have the most cost-effective product for their company.

Weigh out the features and services the software offers in comparison to its prices. Some may be on the pricey side, but it offers an extensive array of services that may go beyond simple payroll management. Others may be cheaper but only provide the basic tools.

Nonetheless, you don’t have to spend more to get the best results. Again, it is best that you look into the internal processes of your business to determine if a basic software is enough to suit your needs or if you will need a more complex one to help you run your business.

Pay and roll

Payroll management means dealing with a bulk load of data that needs a suitable amount of time and effort to handle. You can choose to out-source this task to a third-party service provider, or you can do it internally with the help of an online payroll software.

Using one does not only benefit you but can also be advantageous to your employees. It improves internal processes of the company while also keeping your employees satisfied and engaged. It fosters transparency and trust between both sides while also lessening chances of discrepancies and errors.

By choosing the right payroll software for your company, you can reap such benefits and enjoy the rewards.

GDPR: Can you email payslips, P60s or P45s?

GDPR email payslips

We are sometimes asked “is emailing payslips OK?” and we politely explain that with regard to GDPR, email of payslips is a really bad idea!

Pay documents such as payslips, P60s and P45s contain personal data. This means that the employer has a responsibility to take appropriate measures to protect this data under GDPR. So, what does the GDPR say:


GDPR email payslips

” Taking into account the state of the art, the costs of implementation and the nature, scope, context and purposes of processing as well as the risk of varying likelihood and severity for the rights and freedoms of natural persons, the controller and the processor shall implement appropriate technical and organisational measures…”

GDPR Article 32

The key phrases here are: Technical measures and State of the art. State of the art is a fancy term which means the most modern and recent development. Since GDPR does not specify exactly what can or cannot be used, let’s review what technical measures are available:

  1. Plain email is used by most of us everyday. Emails are transmitted across the web in unencrypted form and that means it’s the easiest to intercept and read. Copies exist on multiple email servers including the senders and the recipients. Throw in a few backups and it means that multiple copies of a single payslip exist across the internet. The oldest technology and the worst idea for GDPR email payslips.
  2. Secure email is better but isn’t generally available and difficult for employees to access.
  3. Password protected email attachments improve the situation, but the issue of how to securely transmit passwords, and a password reset cause issues – particularly if they are sent by plain email.
  4. Secure online access with https is a method for secure communication on the web. You see it every time there is a padlock 🔒 in the browser address. This represents the state of the art.

If your bank were payroll, would it email payslips?

Here is a simpler way of thinking about the issue. Consider the financial personal data you receive today, for example bank statements, building society statements, credit card statements etc. Every financial institution faces the same GDPR issue and all of them have all arrived at one conclusion: No financial instruction would ever send a statement by email. They will send you a notification email about a new statement, but the only way to access the document is via secure online https.

No financial instruction would ever email a statement

In summary, secure online access 🔒

  • means there is only ever one copy of the payslip, P60 or P45
  • is secure
  • is accessed by an employee using a web browser
  • is the state of the art

It’s pretty clear for any employer who wants to adhere to the legislation and be in no doubt of compliance – that the state of the art technical measure is secure online access with HTTPS displaying the padlock symbol 🔒.

That’ s why you should never email payslips, P60s or P45s.


Use secure online access 🔒 to view a live payslip before pay day:

paiyroll® Live secure GDPR email payslip
paiyroll® Live Payslip

Use secure online access 🔒 to view and download a P60, P45 or payslip PDF from any device/ browser:

 GDPR compliant paiyroll® secure https P60 (annual payslip)
paiyroll® P60
paiyroll® secure https P45 - GDPR compliant
paiyroll® P45
paiyroll® prior https non e-mail payslips GDPR compliant
paiyroll® prior payslip

Payroll for the new normal

We have put together a list of must have payroll features for post C19 world.

Click the image, then pinch to zoom.

Must have payroll features for post C19 world

CloudRun from anywhere,
any device
No software
No PC
No more upgrades
Never need to backup
Business continuity
Multiple administratorsIn case I’m not available
Employee self-servePayslips, P60s, P45Never generate or distribute a document again
Zero manual input from payrollEmployees responsibility to enter/ ensure manager approval.No approval = no pay
New starter formsNo form = default tax code
TimesheetsNo timesheet = no pay
Absences
Automated data collectionEmployee/Manager
HR system
T/A import
Pension
HMRC tax codes
MigrationMust have vendor service
PricingNo multi-year commitment
Flex up/down with headcount
Monthly subscription
Live payrollReady/ visible from 1st day of month
Less stress
Catch errors
Integrated Excel reportingPivot table and charts
Full analytics
Create my own reports
E.g. JRS
Employee well-beingSee payslip before payday
View own pay queries
Pay on-demand
Engaged with pay and benefits