How Brexit Has Changed Payroll for UK Businesses

For payroll managers and business owners, understanding these changes is vital not only for compliance but also for maintaining smooth operations. This post will guide you through the key shifts in payroll, covering new regulations, tax updates, hiring implications for EU employees, and the role of technology in navigating these changes.

Understanding New Payroll Regulations After Brexit

One of the most notable impacts of Brexit on payroll has been the introduction of new employment laws. Under EU membership, the UK adhered to a harmonised framework of regulations that largely simplified cross-border hires and payment processing. Post-Brexit, many of these standardised rules have been replaced or renegotiated.

What's Different?

• EU Directives are no longer automatically applicable in the UK, which means businesses now must align their practices with amended UK laws or entirely new legislation.
• For companies hiring employees based in EU member states, different employment contracts and payroll tax considerations now apply.
• Right-to-work checks for EU nationals must now follow the UK's updated immigration system.

Practical Implications for Businesses

For payroll managers, this shift requires increased vigilance to ensure compliance with labour laws and to avoid penalties tied to HR or payroll errors. A straightforward example is keeping track of each employee's residency status to determine their eligibility for employment in the UK.

Impact on National Insurance and Taxes

The UK's departure from the EU has also had a ripple effect on tax and National Insurance contributions (NICs), particularly for cross-border workers and expatriates.

Cross-Border Taxation

Previously, EU Social Security Coordination rules simplified NICs for employees living in one EU country while working in another. Post-Brexit, however, UK businesses must now adhere to new agreements for cross-border taxation. For example:

• The UK and EU operate under a system of bilateral agreements, where specific terms must be reviewed on a case-by-case basis.
• This change increases administrative obligations for payroll teams managing expatriates between the UK and EU.

Employer Concerns

For employers, this requires more rigorous tax planning, particularly when determining where NICs are due. Additionally, businesses must ensure their payroll software is capable of handling these bespoke scenarios to avoid errors or penalties.

Hiring and Managing EU Employees

Brexit has undoubtedly made hiring EU nationals more challenging. The introduction of the UK's new points-based immigration system means companies need to approach recruitment differently than they would have under free movement laws.

Hiring Rules for EU Nationals

EU citizens wishing to work in the UK now require a visa. Employers need to become licensed sponsors under the Skilled Worker route, which adds an additional administrative layer to the hiring process.

Payroll Considerations

The new immigration rules have payroll implications, particularly concerning how residency and working rights are tracked. Key compliance steps include:

• Ensuring that employees hired under sponsorship agreements have valid visas and fulfill other points-based system requirements.
• Classifying workers correctly for tax purposes, as residency status can impact NICs and taxation.

Managing Current EU Employees

For existing employees who were living in the UK before 31 December 2020, the EU Settlement Scheme provides clarity. However, keeping track of settlement statuses and their validity dates is crucial for payroll and HR compliance.

Software and Technology Adaptations

Given the challenges and complexities associated with payroll changes, technology plays a major role in ensuring compliance and efficiency.

Tools to Simplify Payroll

Payroll software providers have made updates to their platforms, recognising that automation and data accuracy are now more critical than ever. Key features to look for in a robust payroll solution include:

• EU Compliance Features: Ensure the software supports bilateral agreements and differentiates between the tax requirements of employees based in different countries.
• Right-to-Work Validation: Some software solutions now integrate right-to-work checks directly into their workflows. For example, solutions like Xero and Sage have rolled out updates to streamline this process.
• Reporting and Auditing Tools: Comprehensive reporting modules help businesses stay on top of tax filings and compliance requirements.

Recommendations for UK Businesses

If your current payroll system does not include advanced options for managing post-Brexit compliance, consider exploring more scalable solutions. Platforms specifically tailored for the UK business market, such as BrightPay, PayFit, and IRIS, offer targeted features for navigating these new challenges.

Steps to Simplify Payroll Compliance Moving Forward

• Stay informed about ongoing changes to UK employment laws and tax agreements with the EU.
• Invest in training for payroll managers to ensure teams understand new rules and regulations.
• Upgrade to reliable, compliant payroll software to automate tax, NICs, and immigration requirements.
• Maintain ongoing communication with employees, especially EU nationals, to address any questions or concerns about their status or payroll adjustments.

Navigating a New Payroll Landscape with Confidence

Brexit has undeniably reshaped the way payroll is managed for UK businesses. While the changes may seem daunting, staying proactive and informed enables businesses to adapt more seamlessly. By understanding updated regulations, focusing on compliance, and leveraging technology, payroll managers and employers can effectively meet these challenges head-on.

At its core, Brexit provides an opportunity to rebuild payroll processes in ways that are more streamlined, efficient, and future-ready.

To ensure your business is fully equipped to manage these changes, connect with payroll or legal experts specialising in EU and UK employment law. Their guidance could give you the competitive edge needed to thrive in this evolving environment.