How long should you keep payroll records?
An essential part of contemporary business practice, the retention of payroll records is often an afterthought when it comes to mission critical tasks. However, failing to abide by the law can carry significant reputational and financial penalties that can carry long-term ramifications for your business.
So, how long should you retain your payroll records and what are the potential risks of ignoring your professional responsibilities?
What are Payroll Records?
Payroll records are a crucial part of any business, allowing you keep track of key information about your employees and contractors. These hold information on the number of hours worked, rate of pay, and any key deductions for each employee.
For employees, this allows them to be accurately compensated for their work to date. This can be salaried or on an hourly basis, requiring staff to keep detailed records about their project work. Once collected, these also include information about additional benefits such as memberships, health
plans, sick pay, sanctioned and unsanctioned absence, and any bonuses acquired.
Having this information in one place is incredibly helpful for controlling cashflow, but also ensuring that projects are managed correctly. Aggregating information can allow business owners to get a high-level overview of how key tasks are being completed and which projects are providing value for money. This can then be contracted against reporting and allow managers to optimise their approach and ensure that no unpaid additional work is being provided for customers.
How long do they need kept for?
Under current legislation, payroll records need to be kept for three years.
As set out by the UK government, this includes six key criteria that must be collected and available for review. These include:
●What employees are paid alongside key deductions
●Reporting and payments made to HMRC
●Leave and sickness records
●Tax code notices
●Key taxable benefits and expenses
●Payroll Giving Scheme (PGS) information
These are required to be reported on annually and HMRC are within their rights to request your payroll information. Once an official request is made, you are required to provide three tax years’ worth of information within the compliance period.
What are the risks of not keeping them?
Failure to abide by this ruling can bring significant professional risk and serious issues for your business. These include-
Legal Ramifications: If your records are not provided within the requested period or delivered in full, the HMRC has the ability to levy a fine of up to £3000 and make an estimate of what you are required to pay. This is not punitive but will be made on previous filings and will be difficult to
challenge. If this is not provided in full, you can be left open to legal action and significant reputational damage.
GDPR Compliance: If you hold onto your information instead of disposing of it, you may find yourself in violation of GDRP protocol. Compliance with new rules and regulations will often require significant reconfiguration, including the consolidation of personnel and payroll information, secure
delivery of payslips, and secure storage. Failure to meet these standards can result in legal action and the negative publicity that accompanies it.
Internal Issues: A close sister to the above issue, if your information is lost or leaked – this can quickly result in serious issues for staff. Payroll contains a great deal of sensitive information that can cause personal and professional complications, leaving you open to legal action and significant
negative press. This can result in the loss of key workers, failure to retain staff and significant damage to cashflow.
How can a digital solution help?
Choosing a fit-for-purpose digital payroll solution carries a number of benefits. In addition to cost-savings and pain-point management, this allows you to take advantage of-
Automation: Choosing a digital solution can allow for a high degree of automation when it comes to payroll management and delivery. This can help save valuable time when it comes to key processing actions and allow you to carry out complex calculations with a single click. Modern systems can help with data aggregation, reporting, and ensure that your payroll processes are streamlined to the highest possible capacity.
Compliance: Last year saw GDPR fully come into effect, with fines and penalties increasingly being leveraged against non-compliant businesses. Selecting the right software solution can help enforce compliance at every step of your payroll processes, making issues around GDPR violations a thing of the past. This also allows you to remain fully compliant with relevant data protection law and avoid issues in the future.
Issue Reduction: Payroll documentation is incredibly important and subject to two key complications – errors and data loss. Human processors may be highly experienced, but errors are inevitable and double or triple checking takes time. Any quality package can enforce validation on your key process steps, ensuring that no steps are missed, and errors caught early. This also allows your teams to avoid data loss or contamination that can cause issues when managing payroll physically – with HMRC requiring businesses to report on losses as quickly as possible.
If you want to learn more about how a digital solution can help with your regular payroll management, our team at Practical Software are here to help. With a strong record of solutions delivery, we will work with your businesses to provide a payroll package that works for you.
You can view our list of services in full from here. Or if you have any
specific questions, queries, or business needs; please do not hesitate to get in touch directly and let our team know exactly what you need to provide the right solution for your particular use-case.