Inside Payroll: Navigating Compliance, Systems, and Data Challenges

It is 4pm on the day before payday. Someone in HR has just updated an employee’s bank details, but the change has not come through to payroll. The FPS deadline is tomorrow morning. You can see the employee’s old details in one system, the new details in another, and no clear audit trail showing which is correct. So you pick up the phone, chase HR, wait for confirmation, manually update the record, and hope nothing else has slipped through the gaps. Anyone working inside payroll knows this routine.

The deadline pressure is relentless. The margin for error is zero. And the systems that should make the job easier often make it harder.

The Compliance Burden

British payroll operates under a simple rule: every Full Payment Submission must reach HMRC on or before payday. Miss the deadline and automatic penalties follow. Get the data wrong and the problems cascade, often invisibly, surfacing months later as incorrect tax codes, wrong student loan deductions, or enforcement action for debts the employer never owed.

The Chartered Institute of Payroll Professionals documented this in their February 2025 report on RTI failures. Employers submitted data correctly, received no error messages, then discovered months later that HMRC had corrupted their records. Submissions marked “partially successful.” Tax codes bearing no relation to reality. The Charge Resolution Team takes 12 to 24 months to investigate. Meanwhile, enforcement continues.

April 2025 made the burden heavier. Employer National Insurance went to 15% on earnings above £5,000, down from £9,100. The National Living Wage rose to £12.21. Employment Allowance increased to £10,500. Statutory Neonatal Care Pay arrived. Every threshold shifted.

Teams working inside payroll on legacy systems spent weeks preparing: updating records manually, testing calculations, running parallel payrolls to verify accuracy before going live. Record by record. Threshold by threshold. Those using platforms with built-in compliance engines had a different experience. Rippling’s UK payroll recalculates NI thresholds automatically when HMRC publishes new rates. PayFit pushes legislative updates before deadlines hit. No manual intervention. No parallel runs to check the maths. The updates simply appear, verified and ready.

April 2027 brings a bigger shift. Mandatory payrolling of benefits in kind adds over 100 new FPS fields and creates a timing problem that will hit employees directly. Someone receiving a £6,000 taxable benefit in 2025/26 will have their tax code adjusted in 2026/27 to collect what is owed, roughly £200 per month at 40%. Then mandatory payrolling begins, and the employer starts deducting tax on the new benefit in real time. Another £200. The employee pays both simultaneously: £400 instead of £200. Someone inside payroll will need to explain this before April, or field the calls when payslips arrive looking wrong.

The Integration Problem

The UK payroll software market reached £1.45 billion in 2024 and continues growing. But spending has not solved the fundamental problem: most organisations run payroll on systems that do not talk to each other.

Employee data lives in one place. Time and attendance lives in another. Benefits administration sits somewhere else. Payroll pulls from all three, and every handoff creates risk. The CIPP puts manual data transfer accuracy at around 97%. For teams inside payroll, that means roughly 180 errors per year across 500 employees and 12 monthly pay runs. Each needs finding, investigating, and fixing.

The pain is specific and familiar. A new starter’s details arrive by email the day before their first payday. Overtime was logged in the time system but the hours do not match payroll categories. An employee went on maternity leave but the benefits system still shows them active. A manager approved expenses but the reimbursement codes do not exist in payroll. Each requires manual intervention. Each takes time. Each risks the deadline.

Zelt built its UK platform to eliminate these handoffs entirely. Employee records, time tracking, benefits, and payroll share a single database. When someone is onboarded, their details flow straight through to payroll. When they log overtime, it matches automatically because there are no separate categories to reconcile. When they go on maternity leave, the status updates everywhere. Rippling works the same way: payroll sits on top of live HR data rather than beside it. Role changes, leave requests, bank detail updates propagate without rekeying. The bank details that changed at 4pm? Updated once in the employee record, reflected in payroll immediately. No chasing HR. No 4pm panic. For anyone inside payroll, this is the difference between firefighting and actual work.

Running parallel payrolls every month because you do not trust the numbers becomes unnecessary when every system draws from one database. There is nothing to reconcile. The source data is always current and consistent.

The HMRC Data Gap

British payroll carries a unique burden. HMRC’s interconnected systems mean any error in FPS or EPS filings can cascade across the tax system. An incorrect National Insurance number creates duplicate records. A wrong tax code means the employee overpays or underpays for months. A missed student loan flag creates liability that surfaces at year end.

The frustration for teams inside payroll is that HMRC holds data they cannot see. The CIPP report documented employers spending months trying to resolve discrepancies without access to the records HMRC was using. You know your submission was correct. You have the audit trail. But HMRC’s system shows something different, and proving your case takes a year.

Platforms like Sage and BrightPay integrate with HMRC’s Data Provisioning Service to solve this at source. Tax codes are consumed automatically at the start of each year and updates flow through in real time. When an employee’s code changes mid-year because HMRC has updated their records, the system picks it up without manual intervention. When HMRC queries a submission, the audit trail is complete, timestamped, and exportable. No more tax codes arriving by post and sitting on someone’s desk. No manual lookup. No data entry errors. No codes missed.

HMRC dropped its plan to require detailed hours reporting from April 2026 after industry pushback. But the direction is clear: more data, more fields, more real-time reporting. Systems built for simpler requirements will struggle. Platforms designed with HMRC integration at their core will not.

The NMW Risk

HMRC’s National Minimum Wage naming rounds now catch over 500 employers per release. The 2023 round identified 202 companies who had underpaid 63,000 workers, with penalties reaching £7 million. By May 2025, the numbers had more than doubled.

Most did not intend to underpay. Salary sacrifice arrangements pushed earnings below NMW thresholds. Shift patterns were miscalculated. Unpaid prep time was not factored in. Deductions for uniforms tipped the balance. The errors compound for months before anyone notices, and by then the back-pay liability has six figures and ACAS is involved.

The problem inside payroll is visibility. How does a pension salary sacrifice election interact with the minimum wage floor for a 22-year-old on variable hours? When does an employee cross from one age band to another, becoming entitled to a higher rate? Fragmented systems cannot answer these questions in real time. You find out at audit, or when the employee complains.

Platforms like Rippling and Zelt build NMW monitoring into the payroll calculation itself. When an employee elects salary sacrifice for pensions or benefits, the system checks whether the resulting pay falls below the relevant threshold for their age band. If it does, the system flags the risk before processing. Some block the election entirely until a manual override is applied, creating a clear audit trail of who approved the exception and why. Age-band monitoring works the same way: the system holds the employee’s date of birth and flags any employee whose rate has not been updated when they cross to a higher entitlement.

The Institutional Barriers

The technology exists. The business case writes itself in avoided errors, recovered time, and prevented penalties. So why do so many organisations remain stuck on systems that create more work than they save?

Procurement cycles that take 18 months to approve a £50,000 annual platform spend while error costs accumulate at three times that rate. IT departments insisting new systems integrate with legacy infrastructure that should have been retired years ago. Budget ownership disputed between Finance and HR. Project sponsors who move on before approval comes through.

The obstacles are institutional, not technical. They leave professionals inside payroll absorbing complexity that better systems would handle automatically.

What Comes Next

Registration for voluntary payrolling of loans and accommodation opens November 2026. Mandatory BIK payrolling arrives April 2027. SSP changes take effect the same month. The Employment Rights Bill brings further obligations.

For anyone working inside payroll, the question is not whether these changes are manageable. They always are, eventually, at cost. The question is whether the systems in place can handle them without consuming the time and attention that should go elsewhere.

The technology exists. The professionals inside payroll already know what they need: single-database architecture, automated compliance updates, HMRC data integration, real-time NMW monitoring. Whether anyone with budget authority understands this too remains to be seen.