Guidance on managing payroll

The process of managing and recording employees' salary, taxes and benefits requires accurate recordkeeping, financial reporting and compliance with legal requirements is quite complex, and the responsibility often falls to the Clerk or Responsible Financial Officer (RFO) employees.  As employers, councils risk falling foul of the statutory responsibilities which can result in penalties being imposed by HMRC.   

For a small fee, SALC offers members a quality service which removes most of the administrative burdens.  Our payroll service is currently being used by over 200 parish and town councils.   

USE THIS LINK FOR DETAILS OF SALC PAYROLL SERVICES FOR YOUR COUNCIL

So what should your council know about handling payment of salaries, annual leave and pensions etc?

The council's Financial Regulations sets out the policy and procedure for the payment of salaries including details of record keeping and, of course, approval of payments.  This includes obligations around PAYE and National Insurance placed on all employers. Here are some (but not all) details of relevant legislation in relation to pay, employment and tax:

  • The Employment Act 2008

  • The Equality Act 2010

  • Pensions Act 2008 

  • National Insurance Contributions Act 2015

  • Employment Rights Act 1996

  • National Minimum Wage Act 1998

  • Income Tax (Earnings and Pensions) Act 2003

  • Income Tax Act 2007

  • Part-time Workers Regulations 2000


Many councils manage PAYE using "Basic Tools", which is a free payroll software from HM Revenue and Customs (HMRC) designed for organisations with less than 10 employees.  Whilst there are some limitations, for many councils it is suitable as the only cost is the additional resource time for handling the process.   Use this link to view and download Basic PAYE tools   from the Government website.

To help manage and understand wider aspects of people management including pay and wages, the ACAS website has easy to read guidance enabling the council to understand National Minimum Wage, requirements for payslips, deductions from pay, sick pay and equal pay etc which can be viewed using this link.   

SALC takes the privacy of all those that are part of our payroll service very seriously, please view our privacy policy by clicking on this link here.  

FAQs

We have put together some helpful information based on frequently asked questions we regularly receive on this topic.   If you wish to raise anything further with us - either use the portal enquiry function or give us a call and we will do our best to assist.  We will continue to add more guidance to this page where necessary.

When employing new staff, here are a few things you need to do which will enable an ideal payroll service

  • Ensure your employee has a clear indication of their pay scale

  • Calculate your employee's holiday entitlement

  • Ensure you have information or reference to a workplace pension, if the employee is eligible

  • Provide your employee with a contract; it is good practice to provide two copies of the contract, both to be signed by the employer (the chairperson) and the employee (usually the clerk). One to be kept by the employer and one to be kept by the employee. This offers protection to both parties as it can be used as a point of reference. A contract will also detail information such as notice periods, holiday entitlement and pay. Model contracts are available to SALC members.  

A P60 shows what tax has been paid by an employee on their salary for the previous tax year (eg: between 6th April xxxx to 5th April xxxx) and it must be provided by 31st May as either electronically or as a paper document.  This will then allow employees to deal with any claim for overpaid tax or show proof of income should they be applying for benefits, such as tax credits.

It is important as an employee to keep an eye on your tax code and contact HMRC if you think it is wrong.

There are many things which can affect your tax code, such as:

  • you are both employed and self-employed

  • you have more than one employment

  • you and your spouse share tax via the marriage tax option

  • you are claiming a pension

  • you have worked consistent overtime which takes you over your current personal allowance threshold, or backpay can have the same affect

  • you own a company car.

HMRC now receive 'Real Time Information' (RTI) via your submissions after each payroll.  This means that each month they can update your employee file, issuing the appropriate tax codes, against any changes with a view to ensuring you are paying the correct amount of tax each month.

A tax code is made up of numbers and letters.  The number is how much tax-free income you get in that tax year for example, the most common tax code is 1257L, meaning that the employee can earn £12,570 tax free.  This is often spread out over the year, so the employee will pay some tax each month based on a yearly figure, less £12,570 divided by 12 as calculated by HMRC.  This is also why some people who work less towards the end of the tax year are often entitled to refunds against the net pay for overpaying tax.

Please note - as an employer, if an employee is entitled to a tax refund this is to be paid by the employer as reflected on the payslip against their net pay and it will then be deducted from any PAYE or NI liability.

The letters refer to your situation and how it affects your personal allowance, for example, 'L' means you're entitled to the standard tax-free personal allowance, 'M' is Marriage Allowance meaning you have received a transfer of 10% of your partner's personal allowance and 'T' means your tax code includes other calculations to work out your Personal Allowance.

A tax code with 'K' at the beginning means that you have income that is not being taxed another way and is worth more than your tax-free allowance, such as paying tax owed from a previous year or receiving benefits that you need to pay tax on.

'Legally, a tax code cannot be changed without sight of the formal notice from HMRC'

You can find more information on what your tax code means by using this link to the Government page 'Tax Codes'.

 You can log into your personal tax account here, where you should see all your employments and the tax code relating to each. If any of these details are incorrect, you must contact HMRC immediately to inform them. 

 

The SAAA website publishes details of appointments including the one for Suffolk.  Use this link to visit the dedicated page on their website.

Use this link to view our blog explaining this subject. 

Use this link to view our blog explaining this subject. 

Under s.112 of the Local Government Act 1972, a council can set salaries at whatever reasonable level they see fit. Councils should note that there is a national agreement based on the characteristics of a local council designed to assist them to evaluate the role.  

From time to time SALC is asked if we can assist with evaluating salaries following a review in roles and responsibilities.  This is something we outsource to our HR specialist at a price of £100 plus VAT.  See article below.

For those councils/HR and Personnel Committees who wish to do this themselves below is a link to current guidance:

  • NALC (National Association of Local Councils) and SLCC (Society of Local Council Clerks) National Agreement on salaries and conditions of service of local council clerks in England Wales 2004 - USE THIS LINK.  Whilst this document was produced some years ago, it provides a useful framework to apply when considering salary scales, taking into account s.112 as above.

  • Here is a template that might be useful to help work through the exercise.

SALC uses specialist HR and Personnel Advisors as part of its enquiry service.  Personnel Advice and Solutions Limited offer a pay evaluation service for a specific post at a cost of £100 plus VAT.  Council wishing to use this service should raise an enquiry through the member portal or email admin@salc.org.uk and provide a copy of the job description for the post being evaluated.  An initial evaluation is then undertaken using the National Joint Council (NJC) Green Book 14 point criteria.  There is a scale for each of the 14 criteria of up to 7 - 8 points, based on the requirements of the post.  The evaluation will provide two scale point options for each of the 14 criteria and a place in the post in two NJC Grades.

Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute towards it.  If you employ at least one person you are an employer and you have certain legal duties in relation to pensions.

Further guidance can be found on the NALC Legal Topic Note 79 available through the Member Portal.  We also recommend councils check the Pension Regulator website for further information  This is available using this link.  

  • By law in the UK employers are required to contribute a minimum of 3% of their employee's salary towards a pension plan.

  • Amounts that both employers and employees pay into pensions can vary 

  • Provide the final payroll report for the previous tax year

  • Provide employees with a P60

A P45 is provided to an employee when they leave an organisation and should show how much tax they have paid in the tax year (6th April xxxx to 5th April xxxx).

'You must pay your PAYE bill to HMRC by: 

  • the 22nd of the next tax month if you pay monthly

  • the 22nd after the end of the quarter if you pay quarterly - for example, 22nd July for the 6th April to 5th July quarter.'

You can find more information on what your tax code means by using this link to the Government page 'Pay employers' PAYE'

If you are late paying HMRC you could be charged a penalty - you can find more information by using this link to the Government page 'Late payment penalties for PAYE and National Insurance.

Payment booklets
HMRC no longer sends printed payment booklets. 
You can still pay tax you owe from the tax year 6 April 2023 to 5 April 2024 at your bank or buildings society using a payment booklet, if you already have one. To pay tax for the current tax year, you must choose another way to pay.

HMRC’s basic PAYE tools is a free payroll software from HMRC for businesses with  fewer than 10 employees.

·         The software is used to calculate an employee’s tax and national insurance.

·         Check national insurance numbers.

·         Send information such as payment information, Employer Payment Summaries (EPS) and Earlier Year Updates (EYU). 


A step-by-step guide on how to use Basic Tools can be found  here .


What doesn’t it do?
 However, as quoted on HMRC  ‘ Basic PAYE Tools has some limitations’  such as; 

·         it does not produce payslips.

·         it does not record any other deductions unrelated to PAYE such as an attachment of earnings.

·         it does not support the change of information such as an employee’s start/leave date after submitted.


It is also important to know that:
 ·         HMRC ‘does not help you work out who to automatically enrol or calculate pension contributions. You need to make sure you calculate pension contributions before using Basic PAYE Tools to make sure the amounts you enter are correct. You are liable to fines if you do not meet your obligations.’ – HMRC

·         ‘You are legally required to provide a workplace pension for certain staff, which you must also pay into.’ – HMRC  More details on your obligations can be found  here . 


SALC Payroll Service - Did you know?
 Besides the production of payslips, processing of starters and leavers and the issuing of all RTI reports to HMRC, SALC’s payroll service also includes:
 ·         Pension auto-enrolment, re-declaration and pension calculations including informing you of when your employees become eligible for a workplace pension. We will issue the necessary correspondence to comply with pension regulations on your behalf.

·         If you have a payroll query or need to make a correction, you will need to contact HMRC which can be time consuming (and therefore not cost effective) and not always fruitful. We can make corrections online, using our payroll software. 

·         With over 15 years’ experience working across different payroll platforms, we can offer you the knowledge and expertise associated with payroll to avoid the lengthy HMRC phone calls. 

·         We can explain tax code changes and make calculations on your behalf and submit your information to HMRC with the knowledge to back up the information we are sending.   

·         Provide all P45 and P60 reports and all year end submissions. 

·         More information can be found here .   

From 1st April 2024, National Living Wage (which now applies to all those employed over the age of 21) and National Minimum Wage (which applies to those aged between school leaving age up to the age of 20) will increase.

“It’s a criminal offence for employers to not pay someone the National Minimum Wage or National Living Wage, or to fake payment records.” - HMRC

All details of the minimum wage increase can be found on the HMRC website, using this link National Minimum Wage and National Living Wage rates - GOV.UK (www.gov.uk).

You can also find a useful guide to ‘The National Minimum Wage and Living Wage’, using this link Print The National Minimum Wage and Living Wage: Overview - GOV.UK (www.gov.uk).

If you are a SALC payroll customer, I will automatically implement this pay increase to all relevant employees on 1st April for you.

As an example, for an employee aged 23 this will mean a pay increase from £10.42 to £11.44. 

Claiming Expenses and Homeworking Allowance

It is recommended that all expenses are reimbursed via payroll, this way the Payroll Officer can determine and allocate the deduction of tax where necessary to avoid having to submit a P11d or a P87 at year end. 

Some expenses can also be claimed for by contacting HMRC and adjusting your tax code. 

More information on what can be claimed can be found here.

Councils can reimburse their employees for ‘reasonable additional costs’ incurred through working at home. These include such things as heating, lighting, and telephone calls.

This is a tax exempt payment of up to £6 per week/£26 per month which can be made providing that:

·         The employee needs to work from home

·         The amount paid is not more than their additional household expenses

·         The amount paid is not more than the current weekly limit

If you are employed by multiple councils, your employers can  each  pay up to £26 per month tax free provided that each council is satisfied that the total amount paid does not exceed the additional household expenses involved.

Where the council does not pay a homeworking allowance, employees can obtain tax relief from HMRC which allows them to avoid paying tax on £26 per month. 

More information on homeworking allowance can be found here.

If you choose not to claim expenses through PAYE, you may need to report to HMRC.

Information on the most up to date NJC pay award can be found here NJC Salary pay award 2024-2025 | SALC Website.