From April, businesses will face higher payroll costs due to an increase in National Insurance Contributions (NICs) and an uplift to the national minimum wage and the national living wage.
By communicating these changes to clients proactively, accountants will be able to reinforce their position as a trusted business advisor, while ensuring that their clients don’t receive any nasty payroll surprises. Such conversations also present an opportunity for accountants to upsell payroll services, if they don't do so already.
Increase to the National Living Wage and National Minimum Wage
National Minimum Wage
The national minimum wage must be paid to all workers and applies to temporary and permanent staff.
It will increase from £8.36 to £9.18 for standard workers, and from £8.36 to £9.18 for apprentices from 1 April 2022 and must be paid by all employers, no matter how small they are.
Workers of school leaving age (16) are entitled to the national minimum wage, with those over 23 qualifying for the national living wage.
National Living Wage
The national living wage is payable to all employees over the age of 23 and will increase from £8.91 to £9.50 per hour from 1 April 2022.
This will result in workers earning around an extra £1,000 per year.
Accountants and employers can check whether workers are paid the minimum thresholds by using the minimum wage calculators on HMRC’s website.
Increases to NIC contributions
NIC contributions for both employers and employees will increase by 1.25% from April 2022, with the extra funds raised earmarked to support the NHS and social care across the UK.
These changes will result in increased payroll costs for employers and less take-home pay for workers, assuming they don’t benefit from pay rises and are already paid above the minimum salary thresholds.
As the current top NIC rate for employers is 13.8%, and employees 12%, the forthcoming rise of 1.25% is significant, with the former rising to 15.0% and the latter to 13.25%.
This will result in employees on an average annual salary of £31,500 paying an extra £233 of tax per year.
Communicate changes to raise awareness and create new revenue opportunities
While companies who manage payroll via accounting software should have these changes reflected automatically, accountants should still communicate changes so clients have enough cash to meet extra costs from April 2022.
Additionally, these conversations should also inform clients that staff will be taxed more, so pay rises may need to be considered to retain key members of personnel who are already paid above the minimum wage thresholds.
This also creates an opportunity for accounting firms to market payroll services to clients who have historically kept this function in-house, and an excuse to sell in cash flow forecasting services to clients they already provide payroll for.
Automation capabilities now make payroll an attractive service to offer
Developments in technology are changing the status of payroll from a manual led service with limited profitability, to a close to real-time value-added workflow, powered by automation.
Tools like the Modulr Payments Dashboard are disrupting payroll by using a single online portal that integrates with leading accounting software vendors to set up, approve and make payroll payments to employees and HMRC.
Efficiencies from the Dashboard also enable accountants to streamline their services by reducing manual entry, eliminating errors and allowing the client to approve bank payments, with just a few clicks.
Payroll no longer has to be a time-pressured service as payments can be set up in advance, with payments via the Faster Payments network clearing in around 30 seconds.
Added benefits of providing payroll services
Providing payroll services makes compliance filings much easier as accountants no longer have to be responsible for fixing accounting entries for clients who undertake payroll themselves.
Additionally, administering payroll for clients further embeds accountants into their clients' businesses, making the accountancy proposition ‘stickier’.
The enhanced visibility of this accountant/client relationship also opens the door to other high-value advisory services, such as access to finance, cash flow forecasting and R&D tax credits.
So, in conclusion, imparting knowledge about changes to payroll shows clients that you are proactive and have their best interests at heart. Accountants should make the most of this opportunity, alongside advances in payroll technology, to consider scaling up their existing payroll clients or introducing Payroll-as-a-Service to others, for the first time.
Innovations, such as the Modulr Payments Dashboard, mean that it’s never been easier for accountants to introduce payroll as a profitable service line and to become further embedded within their clients' businesses as a result.