Statutory Payments Explained: Part Two
Welcome to part two of our three part series covering everything related to Statutory payments. In part one we went through what statutory payments are, the minimum earnings thresholds to receive them, the amount you can receive, etc.
In this blog we will cover want you need to implement through your payroll systems and common pitfalls to avoid.
Implementing Statutory Payment Systems
Initially setting up proper systems for statutory payments requires careful planning and the right tools. A well-structured approach ensures both compliance and efficiency in managing employee payments.
Setting up payroll processes
First thing to remember, businesses must register for PAYE with HMRC before processing any statutory payments. The registration process takes approximately 10 working days. After registration, employers receive essential references:
- PAYE reference for identifying the scheme
- Accounts Office Reference for payment allocation
Record-keeping requirements
In essence, maintaining accurate records is crucial for statutory payment management. Employers must retain records for three years from the end of each tax year. Essential records include:
- Employee details and payments
- Tax and National Insurance contributions
- Statutory payment calculations
- Payment dates and amounts
- Reclaimed payments from HMRC
Additionally, businesses must comply with data protection regulations when storing employee information. Generally, secure destruction of outdated records through methods like shredding is mandatory.
Managing Compliance and Avoiding Penalties
Proper management of statutory payments requires vigilant oversight to avoid costly penalties and compliance issues. Indeed, HMRC data shows that in 2021-22, over £13.2 million in penalties were levied across more than 3,000 investigations.
Common compliance pitfalls
Above all, businesses must avoid these frequent errors that trigger HMRC scrutiny:
- Incorrect classification of workers’ employment status
- Misapplication of tax codes
- Late or missing Real Time Information (RTI) submissions
- Inaccurate record-keeping
- Improper pension scheme management
The penalty structure has become increasingly stringent, with rates rising from 50% to 200% of underpayment since 2014.
HMRC reporting requirements
Employers must submit two key reports to HMRC:
- Full Payment Submission (FPS)
- Employer Payment Summary (EPS)
Although HMRC allows a three-day grace period for late submissions, persistent delays may result in penalties. Similarly, specified charges may be imposed based on previous PAYE payment history if reports are missing.
| Number of Employees | Monthly Penalty |
| 1-9 | £100 |
| 10-49 | £200 |
| 50-249 | £300 |
| 250+ | £400 |
Handling payment disputes
Nevertheless, employees can challenge statutory payment decisions. As a result, employers should:
- Provide written explanations for payment decisions
- Maintain comprehensive documentation
- Respond promptly to HMRC inquiries
If disputes arise, HMRC’s Statutory Payment Dispute Team serves as the first point of contact. The team must receive notifications within six months of the payment issue. Employers then have until the first payday after the decision (or second if not practicable) to make any required payments.
Conclusion
Statutory payments stand as essential legal requirements that demand careful attention from every UK business owner. Though managing these payments might seem complex, proper understanding and implementation of the correct systems safeguard both employers and employees.
Businesses that maintain accurate records, implement reliable payment systems, and stay current with regulatory changes protect themselves from costly HMRC penalties. Regular reviews of payment processes, alongside proper staff training, help ensure consistent compliance with all statutory obligations.
At WCL we can help you set up your payroll systems, can run your payroll for you or simply give advice and guidance. Whatever support you need, please don’t hesitate to get in touch. We’d love to hear from you.
