Paper payslips still rule the workplace

Despite increasing digital development, it appears that employers continue to favour paper pay advice, according to the CIPP’s annual payslip survey.

Around 73% of respondents in the 2013/14 CIPP Payslips Statistics Comparison Report reported that their employers provide paper payslips to employees. Is this because employers favour this method or are employees driving the trend, asks Karen Thomson, associate director of policy, research, and strategic visibility at the institute.

The figure is likely to drop significantly over the next few years as the trend is clearly for digital delivery using employee self service methods, 38% of respondents state this is the preferred method, particularly in view of the potential savings reported, up to £15,000 in one case. Some employers use the simpler “pdf” e-mail route, but this is probably just one step on their way to self-service.

This article looks at some key findings in the 2013/14 survey, namely changes in the sizes of employers compared to previous years, the effects of real time information (RTI) implemented by HMRC and those of the continuing implementation of automatic enrolment for pensions, which started in 2012 and will continue to 2017.

We will also look at the trend towards outsourcing of the payroll function and whether the results point to a renewed interest in this method of delivering payroll services, compared to the traditional in-house provision.

Before we look into these areas, let’s remind ourselves why payslips are produced in the first place. Provision of a pay advice is an employment right laid down in sections eight to 10 of the Employment Rights Act 1996, the right to an itemised pay statement on or before pay day.

Itemised does not, it seems, include the employees name or any generally accepted additional items such as NI number, tax code among others.

We can see therefore, that the act is much more concerned with the monetary information and more importantly, the deadline for supply. It is this last part which is of primary importance to employers, or should be.

Much has been made of the word “written” and some time ago the earliest attempts to modernise the delivery of pay statements took a knock when employee representatives claimed that an electronic statement was not “written” and therefore failed the requirements of S8(1) of the act. This challenge failed, however it did delay development towards e-payslips.

The survey shows that between 2012/13 and 2013/14 one very interesting change was the size of payrolls being reported in the survey, with the numbers of businesses employing between 5,001 and 10,000 employees dropping from 15.4% to 10.1% balanced off by a corresponding change in the numbers of businesses employing in excess of 10,000 employees which had increased from 13.1% to 15.9%. Even taking a cautious approach to this we would seriously consider it to be an indication of increased economic activity.

During the period of the survey all employers had implemented RTI with many of the same employers having to cope with AE requirements at the same time. It is clear that some of those employers faced increased payroll costs as a result of RTI and many are continuing to face increased costs over AE.

Interestingly 60% of respondents reported that they faced no increased costs as a result of RTI, whether that was internal or increased charges from the provider. Just 7% of respondents claimed not to know of any increased costs leaving one third who clearly had additional costs. Figures ranged from just £625 for new software to a surprising £32,000 for upgrades, just to the Bacs payment facilities.

Many very small businesses and providers had to invest in payroll software for the first time for RTI. The sums involved would be much smaller, but, as a percentage of turnover this represents a significant change for those businesses.

Contrast this with the responses for AE and we find that significant numbers of respondents reported increased costs as a result of compliance with the new pension reforms. This is to be expected, however, we need to note that AE will continue to be an issue until early 2017, while ongoing pension administration is likely to cost employers considerable sums.

More than 43% of respondents reported additional costs in respect of compliance with AE, many of these reporting also they required additional resource to cope with it, something which was clearly not required for RTI.

Upgraded software was by far the main reason for the increased cost and interestingly interfacing with pension provider’s middleware was, individually, higher than any individual payroll software increase.

As we move into the final years of AE activities it will be interesting to see if these costs turn out to be “one-off” or if there are significant “on-going” charges associated with AE.

The costs reported by respondents range from just £625 for software upgrades, through £4,000 and £5,000 just to interface with middleware and up to £50,000 for additional resources to cope with the changes.

Despite all this, the survey clearly shows that in-house provision is the favoured method of providing payroll services.

There has been a marked rise in the number of payroll bureaux operating more than 1,000 clients, what you might call a super bureau, and this has led to speculation that both RTI and AE may have led a drive to outsource, as more and more employers decide they have had enough of the complexities of payroll and have sought outside expertise to carry it out.

Outside of the survey the CIPP is aware of many traditional accountancy based payroll services being sub-contracted to payroll bureaux managed by qualified payroll specialists, simply because of the complexities.

In summary, despite a reduction in responses, we can see a continuing trend towards e-payslips from employers and increasing acceptance of these by employees and employers are seeking, and getting, cost savings as a result, even if there are still security concerns to consider.

RTI has had an effect on payroll costs but not as much as expected, however AE has had a significant effect on costs and clearly will continue to do so for some years to come.

We look forward to seeing how these trends develop into 2014/15 and beyond.

 

Karen Thomson is an associate director of policy, research, and strategic visibility at the Chartered Institute of Payroll Professionals (CIPP).