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The Quiet Revolution in Payroll

The Quiet Revolution, part 1

The changes taking place in payroll today are nothing short of revolutionary and the impact upon payroll bureaux is huge. In this series of articles I cast an eye over the history of the payroll bureau, analyse the recent changes and report back on how some of our clients are coping with the New Reality.

For many years the payroll bureau was the very poorest relation among the services provided by a firm of accountants. Staffed by some of the least well paid employees of the firm and located in a cellar, an attic or an annexe room they strove away quietly providing a dependable and, fundamentally, crucial service to the firm’s clients. They calculated the pay for hundreds of employees without the benefit of powerful computers; in fact, in the early days, there was no automation whatsoever and a set of printed Tax Tables was their main office tool, alongside the pen, ruler and stacks of payslips, waiting to be filled in by hand.

Far more important were the audit, wealth management, business recovery and tax departments, staffed by employees in grey suits or, for the more adventurous, pin-striped dark blue ones. These were the true revenue generators for the firm.

Then, one day, computers came along and things began to change. IT had differing impacts at different stages upon the different specialisations in a firm through the 80’s and 90’s and it certainly removed much of the drudgery from the life of the payroll person. Unfortunately, this further diminished their perceived value as the payroll task was now dismissed as easy as “the push of a button”. Obviously, this was far from the truth and in reality the complexity of payroll legislation was beginning to grow as the legislators realised that they could concoct ever more nuanced variations on a taxable theme to satisfy their voters.

More influential perhaps were the political and demographic changes taking place from the mid-70’s to today. First, the pressure on governments to reduce the costs of ‘bureaucracy’; and, second, the growing emergence of the “pension deficit”. Since 2005 HMRC has shed almost half its staff and is set to lose a further 10,000 over the next three years, this has been achieved largely under the banner of computerisation with projects such as Real Time Information. And today, it is accepted that the state pension system alone cannot cope with and ageing population and not enough ‘workers’ to pay their pension costs as they retire. These two influences are now hitting payroll bureaux and some are being knocked for six!

During the ‘naughties’ a few firms latched on to the shifts taking place in payroll and that the value of this service to their clients was possibly greater than they had realised. Payroll staff were treated to the luxury of two screens to help increase their efficiency, Partners began to ‘talk up’ the service instead of offering it at little or no cost to the client and firms began to offer some of the new solutions in the market such as ePayslips. These firms are the ones who have been best placed to respond to the New Dynamics of the payroll bureau marketplace and take advantage of the undoubted opportunities which it presents.

In my next article I will examine how the job of a payroll service provider has changed dramatically in the last 10 years and assess the impact upon accountancy practices which provide a bureau service.

Barry Matthews

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