Although it doesn’t generate quite the same level of fanfare as the 31st December, the end of March signifies a fresh start in the world of HR, finance and payroll. From new annual leave year balances, closing out year-end on finance and payroll, issuing P60s, and filing company accounts at the end of March. For many, it signifies that ‘line in the sand’ as we close out the old and open the new. 

Here we discuss what HR, Payroll and Finance teams should be thinking about for the year ahead.

National Minimum/Living Wage Increases

1st April each year signifies the increase in the National Living/Minimum Wage. This year the National Living Wage rate increases to £10.42 for those 23 and over. It’s widely accepted that minimum wages are an effective way to help workers at the lower end of the income profiles; without damaging their job opportunities. But while the UK’s minimum wage has risen faster than the inflation rate over the past two decades, it is now falling behind.

But as the cost of living increases, workers’ wages, especially those on the minimum wage, are being squeezed. In real terms – adjusted for inflation pay, excluding bonuses, dropped by 2.8% on the 23rd March compared with the previous year, according to the ONS, which was a record decline.

Whilst the National Living Wage affects those at the lower end of the pay scale, many businesses review pay in relation to the National Living Wage increases. Given that the increase was 9.7% this year, many businesses will deliberate on if the salaries of the whole organisation should increase by the same percentage. 

The annual increase also can result in those on lower pay bands’ catching up with those who manage them, and HR needs to consider the impact on the responsibilities of workers where the pay gap is not maintained. 

From a budgeting perspective, not only is the increase in payroll costs associated with the National Living Wage, but employer’s costs (National Insurance and pensions) also increase. This is because the employer’s National Insurance changes to 13.8% from April 2023, and the current pension regulator rate for the minimum Employer contributions for a workplace pension is fixed at 3%.

Pay Gap Reporting

Since 2017, organisations with a headcount of 250 or more on 5th April (known as the snapshot date) are required to publish their gender pay gap information, together with a written statement, on an official reporting website by 4th April of the following year. In addition, businesses are encouraged to provide supporting details explaining the causes of any pay differences and an action plan on how they intend to address those issues in the year ahead or to clarify if there is a viable reason for the differences.

The gender pay gap is the difference in average pay between men and women in the workforce, often measured as a percentage of men’s salary. Reporting on the gender pay gap serves several important purposes.

Reporting on the gender pay gap helps raise awareness about the issue and draws attention to the disparities in pay between men and women. This increased awareness can drive public and policy action to address the issue.

By reporting on the gender pay gap, employers are encouraged to examine their own pay practices and take steps to close any existing gaps. This can include implementing equal pay policies and practices, increasing transparency around pay and promotions, and addressing any unconscious bias or discrimination in the workplace.

Closing the gender pay gap can help to improve equality between men and women in the workplace and create a fairer and more inclusive work environment. This can positively impact employee morale, productivity, and retention and help attract and retain a more diverse and talented workforce.

Overall, reporting on the gender pay gap is an essential step towards creating a more equal and fair workplace and can help to drive positive change for women in the workforce.

HR and payroll solutions should be able to provide the gender pay gap extracts without complex manual calculations. There are six key calculations to be undertaken and reported:

  1. Percentage of men and women in each hourly pay quarter
  2. Mean gender pay gap for hourly pay
  3. The median gender pay gap for hourly pay
  4. Percentage of men and women receiving bonus pay
  5. Mean gender pay gap for bonus pay

This link supplies greater detail in calculating the gender pay gap. 

The “equality pay gap” is a term used to describe the difference in pay between individuals of different races, ethnicities, religions, or other demographic characteristics who are doing the same or similar jobs. Like the gender pay gap, the equality pay gap can be a significant issue in many workplaces and industries and negatively impact affected employees.

The equality pay gap is often driven by systemic and structural inequalities, including discrimination, bias, and unequal access to opportunities, education, and training. These factors can result in individuals from certain demographic groups being paid less for the same work as their peers.

To address the equality pay gap, employers can take steps to ensure that their pay practices are fair and equitable for all employees. It may include conducting regular pay audits, implementing transparent and objective pay scales and promotion processes, and providing training and education on diversity, equity, and inclusion.

Addressing the equality pay gap is essential for promoting fairness and equality in the workplace and building a diverse and inclusive workforce that can drive innovation, creativity, and success.

There is no current mandatory requirement to report on other equality pay gaps. However, even where it is not currently required, many employers voluntarily report on their equality pay gaps as part of their commitment to diversity, equity, and inclusion. This can build trust with employees, customers, and other stakeholders and demonstrate a commitment to fair and equitable pay practices.

In addition, some industries or sectors may have their own requirements or standards for reporting equality pay gaps. For example, in the United States, federal contractors are required to report on their diversity and inclusion efforts, including pay equity data.

Regardless of whether reporting on equality pay gaps is mandatory, employers need to address any existing pay disparities and promote fair and equitable pay practices.

Payroll Year End

Payroll year end signifies the time of year to prepare for the submission of P60s to employees. Whilst the mandatory deadline for P60s is to have them released to employees by the end of May, many employers will release P60s earlier once any previous year adjustments have been completed. 

Whilst many payroll solutions and integrated HR and payroll solutions will automatically be updated with new year rates and legislation, it is important to check your solutions for any manual ‘rate tables’ you have created to ensure they reflect the minimum wage changes.

The critical thing to remember is that your final reports to HMRC for the 2022/23 tax year must be submitted by no later than 19th April 2023.

Avoiding errors that require retrospective adjustments is key. Adjustments required after 19th April will involve submitting additional FPSs or EPSs.

Before 2020/21, retrospective adjustments were made via an Earlier Year Update (EYU); but this is no longer in use.

Some things must be done manually by the payroll team at year-end too:

  • For those with deferred National Insurance, their CA2700 certificates are only valid for one tax year, so renewed certificates are required before you can process pay for the new tax year using the deferred National Insurance contributions (NICs) insurance category letter.
  • Those receiving childcare vouchers should be reviewed to ensure they do not need an amendment to the value they are eligible to receive. As part of the PAYE process, HMRC requires you to complete a Basic Earnings Assessment (BEA) before each first pay period in a new tax year for anyone who has received childcare vouchers since 6th April 2011.

Digital Transformation

As we head into the new Tax Year for 2023, CFO’s and business leaders will likely be implementing plans and budgets agreed upon ahead of the new year. The cost of living increases affects all areas of business and not just employees. 

Inflationary pressures, changing interest rates, and a potential economic downturn are all new forms of disruption for the finance function. However, we can predict only one thing for the remainder of 2023/2024; disruption is the new normal for the foreseeable future. Therefore, businesses are preparing to face these challenges by releasing the benefits associated with digital transformation. Businesses cannot afford to have a ‘technology debt’ associated with not continually reviewing and improving on technology – it is not a case of setting it and forgetting it. In fact, according to Gartner, 60% of businesses expect to increase their investment in technology in the current year (2023), even at the cost of decreasing the employee headcount to fund the changes. 

We know that the pandemic prompted higher demand for new digital capabilities. However, with digital transformation comes a more increased need for cyber security and artificial intelligence, which will have associated costs and budget strain.

With HR digital transformation still being a hot topic for business leaders, some still need to ‘catch up’ with the digital employee experience requirements associated with hybrid working. From our client base, it is clear that businesses that thrived during the pandemic had strength in HR processes and automated, online, personalised systems. 

Digital transformation in HR is more than just replacing the HR solution; it describes the method of remodelling the business led by the HR department. Maximising the candidate and employee digital experience is critical to this journey. 

Consider the applications of technology within the hiring process alone. Candidates are pre-screened, interviewed for the first round and assessed before interacting with a human from the organisation. These candidates have been engaged through content such as videos, blogs, documents and social media interactions (in much the same way a customer interacts with the business too). This would allow the hiring team to focus on the quality of candidates, moving those through the funnel quicker who seems to be the best fit for the organisation. 

Within the finance function, technology such as Sage Intacct is already utilising the latest cloud-based technologies and artificial intelligence to remove the more repetitive and error-prone tasks such as reconciliations, inputting and matching data and reading invoices to extract data from them. 

The application of technology has never been more exciting than right now with the resurgence of artificial intelligence. Whilst we are not quite at the point of asking Alexa to create our budgets for the year ahead, who knows what Chat GPT might do for us?

I asked Chat GPT what we should consider when creating our budgets for this year, and its answer was textbook:

  1. Historical data: A business should review its historical financial data, such as revenue and expenses, to help forecast future financial performance. This will help the business to identify trends and patterns, which can be used to create a realistic budget.
  2. Business goals: A budget should align with the business’s overall goals and objectives. The budget should support the business’s growth plans, and include investments in areas that are key to achieving these goals.
  3. Industry trends: A business should consider industry trends and benchmarks when creating a budget. This will help the business to understand how it compares to its peers and identify areas where it needs to improve.
  4. External factors: A business should consider external factors that could impact its financial performance, such as changes in economic conditions, interest rates, and regulations. The budget should take into account these factors and include contingency plans to mitigate risks.
  5. Stakeholder expectations: A budget should take into account the expectations of stakeholders, such as investors, lenders, and customers. The budget should be communicated clearly to these stakeholders to help build trust and confidence in the business’s financial management.
  6. Flexibility: A budget should be flexible enough to adapt to changing circumstances. A business should regularly review its budget and adjust it as necessary to reflect new opportunities or challenges.

Payment Processing

Another critical consideration for Finance functions in 2023 is reviewing the cashflow statement to determine how cash will support the maintenance or growth of the business in 2023. For example, early payment discounts can increase the likelihood of being paid on time, build customer loyalty, and increase business competitiveness. 

Incentives for early repayments usually fall in the 1 – 2% range, so planning for this reduction in revenue from customers may easily be offset by reducing the amount of debt written off. Clearly, ‘Cash is King’ and having a stable cash flow position is critical in times of economic instability. 

Linked with early payment discounts are also B2B payment innovations, including integrating payment solutions directly into finance solutions such as Sage Intacct. Solutions like IGSend from the Income Group integrate into payroll and finance solutions to pay instant payments 24/7,365 using faster payments at the same costs as BACS. 

According to the latest figures published by Bacs Payment Schemes Limited, more than 150,000 organisations in the UK use Bacs Direct Credit and Bacs Direct Debit to make and receive payments. This includes companies of all sizes, government organisations, charities, and other types of businesses. Bacs is a widely used payment system in the UK and is responsible for processing billions of transactions each year. A report published by Bacs Payment Schemes Limited suggested that over 90% of UK employees are paid through Bacs Direct Credit. 

Faster Payments is a newer payment method introduced in the UK in 2008. It allows for near-instant electronic payments to be made 24/7, 365 days a year, including weekends and bank holidays. Faster Payments are usually credited to the recipient’s account within minutes, although this can vary depending on the bank’s processing times. Faster Payments are typically used for smaller payments, such as one-off payments or payments to individuals, because of the costs associated with the transactions. Subscription-based providers like IGSend reduce the costs associated with Faster Payments considerably (to compete with BACS costs). 

For Payroll and Finance teams where accuracy is critical, the loss of 2 days of processing from each payment cycle can be problematic, particularly during weekly payment runs or payrolls.

Given that Faster Payments can be processed within minutes, it would be possible to pay employees each week at Midday on Friday, meaning an additional 2.5 days of processing, checking and reconciliation time per period. With the cost barrier being removed, there are fewer reasons not to process payments via Faster Payments. 

This also opens the possibility for employers to support employees’ financial well-being. Solutions such as PayCaptain are ahead of the curve on this feature in particular, with money planning tools, financial guidance and income and spending advice as part of the payroll platform. PayCaptain has developed an interactive in-app questionnaire to evaluate employees’ feelings about their finances. The tool generates a personalised financial well-being score and recommends practical steps to help improve financial health. The information is confidential, but companies can view anonymised average scores to track employee sentiment in aggregate and monitor improvements across their workforce over time.

Employers can encourage their employees to save at key interventional times, e.g. when an employee completes their student loan payments; they can be encouraged to save those funds instead. 

Outside of the payroll function, one of the most significant impacts of the cost of living crisis is the stress employees feel due to finances being stretched to or beyond their limits. Stress in the workplace is a pandemic in itself, with reduced productivity, absenteeism or presenteeism affecting the workplace and home life. In addition, many employees may lack basic financial knowledge, such as creating a budget, managing debt, or saving for retirement. Employers can offer financial education programs or seminars to help employees develop these skills.

Employers can also consider offering financial wellness programs that provide tools, resources, and support to help employees improve their financial health. These may include financial planning tools, debt reduction assistance, or resources to help employees build emergency savings.

At Phase 3, we work with hundreds of businesses every single day to help them streamline critical operations by adopting the right technology. 

From project conception to implementation, we help firms understand what processes can be automated, the processes involved in making those workflows function, and identify the best-available software solutions on the market to meet your needs. 

Learn more about our software selection services right here.