Five Payroll Issues Your Business Must Understand in 2016

Payroll is often a major concern for many small business owners as every year there are so many rules and regulations to adhere to. 2016 is no exception and there has seen a plethora of legislation changes that impact businesses’ payroll responsibilities. From changes to tax rates to National Insurance updates, the National Living Wage to Auto Enrolment, there are so many things business owners need to get their head around to be compliant.
Here are five of the key issues you need to understand with links to resources that provide detailed information.
Tax rates
• There are no imminent changes to the percentage basic, higher and additional rates of Income Tax.
• There have been changes to the tax rate LIMITS, however.
• The basic rate tax limit has been increased to £32,000 and the higher rate threshold has risen to £43,000.
• The National Insurance Upper Earnings Limit has increased in line with this rise.
• The tax-free personal allowance has increased to £11,000.
For more information on tax rates visit
National Living Wage
• The National Living Wage has come into force, replacing the National Minimum Wage.
• Although it is only applicable to workers over 25, it is financial affecting many businesses.
• The NLW starts at £7.20 per hour and will rise to £9 per hour by 2020.
• Workers younger than 25 are still regulated by the basic National Minimum Wage.
• The government is seriously enforcing the payment of both the national living wage and the national minim wage.
• Fines have been doubled for non-payment to 200% of arrears for non-compliance with a maximum penalty of £20,000 per worker.
For more information on the National Living Wage visit
National Insurance
• The introduction of the New State Pension in April resulted in a new single tier, flat rate State Pension for everyone who will reach State Pension age after 5 April 2016.
• It will make it clearer for people to understand what they will receive so that they can plan for their retirement.
• The State Pension replaces the existing basic and additional State Pension for those who reach State Pension age after 5 April 2016.
• No one is now allowed to ‘contract out’ of the State Second Pension in favour of their own company pension. This rule affects everyone who pays into a final salary pension.
• This means that national insurance contributions have gone up by an average of 15% for around 6 million people.
Find out more about the new State Pension here.
Student Loan repayments
• Changes in April to the Student Loads repayments have resulted in two types of student loan deductions.
o Plan 1 – This is for students who took out a loan before the 1 September 2012. They will be required to make student loan payment contributions if they earn over the threshold of £17,335.
o Plan 2 – This is for students who took out a loan during or after the 1 September 2012. For these students, payments contributions will be required if they earn over the threshold of £21,000.
• Businesses should use the ‘New Starter Checklist’ to gather information about employee’s student loans.
You can find out more about paying student loan contributions here.
Auto Enrolment
• The new Auto Enrolment Legislation means a fundamental change to workplace pensions for SMEs in particular.
• The scheme has been developed by the government to ensure UK workers are adequately prepared for retirement by encouraging them to better save for the future.
• Businesses have a legal obligation to start paying into employees’ pension funds and employers must automatically enrol eligible employees into a workplace pension scheme that meets the conditions of the legislation.
You can find out everything you need to know about Auto Enrolment here.
Keeping on top of your payroll responsibilities can be a real challenge for many small businesses. Some businesses opt for bespoke payroll software which can really help as most packages will automate your responsibilities and are updated as and when rates or regulations change. It can still be a time-consuming and complicated task however and many businesses choose to outsource their payroll to a professional firm. By outsourcing to the experts you can save yourself time and hassle, and ensure you are on top of regulations and paperwork.
To discuss how Tercus HR can help shoulder the burden of your payroll responsibilities contact us by calling 0330 555 1139 or email us at