16th February 2017
This is a cautionary tale but one that I wanted to share with clients and colleagues as I feel it is important. It stems largely from me falling into the category of ‘geek’ where PAYE and payroll calculations are concerned. But on this occasion my geekiness’ managed to identify a flaw in the way payroll software was calculating the December figures.
Whilst many of you were hunkering down to yet another plate of gammon or turkey between Christmas and New Year, accountants and bookkeepers like me around the country were carrying out month/year end routines as normal, including the payroll that everyone is so desperate for at the end of December! But if you think that because no one is watching, we carry out these tasks with a sneaky little Baileys on the side of the desk, think again, and luckily so in this instance.
As I was running one client’s payroll, the software produced a net figure which looked unusual. I know it looked unusual because for a significant part of my early career, there was no such thing as payroll software and so one became adept at manually calculating PAYE using the paper tables supplied by HMRC.
I noted the figure and ran the payroll for that client before trying the same thing with another client. The same issue presented. Interestingly it only seemed to affect female directors that were single and aged over 40. Married female directors were fine, male directors were fine and younger female directors were also fine! Bizarrely, now the issue has been resolved we know that it had nothing to do with any of these factors, that was just a pure coincidence, but it did highlight other similarities – the fact that they were all new payroll clients with effect from Month 1 this year and they were all directors.
Directors’ National Insurance is calculated differently to that of regular employees, so the issue only came to light this month due to most directors’ salaries hitting the amount where NIC starts to be paid. It turns out that for some of the directors the software was confusing the date of becoming a director with the date of the first pay run and/or the date employment started. The result was the calculations were completely different; flagged, in this instance, by the unusual values calculated for single females over 40.
Very pleased I had spotted this, I contacted the software support team and we were able to fix the issue, but it did make me wonder how many other people using payroll software simply accept the figures and carry on regardless….?
What this proves for me, once again, is that even payroll software, that supposedly enables anyone to be able to process pay runs and returns to HMRC, requires a level of skill, knowledge and insight to use and cannot be run by simply anyone. Had my knowledge of payroll calculations not triggered my instinct to get to the bottom of what was happening, many of my clients would have been under/overpaid, not only in December but for the remainder of the tax year.
If you need some guidance on your payroll software, please contact us and we’ll be pleased to help.