Employee benefits can now be processed through the payroll. To do this you will need to select to Payroll your benefits (you will need to have registered with HMRC before the start of the year you wish to payroll benefits for).
Payrolling benefits will apportion the cash equivalent value of a benefit over the tax year, this amount is added to the employee's taxable pay each period and taxed accordingly. Benefits will show on the employees' payslips.
To access payrolling benefits you will need to go to Payroll Settings > Benefit Categories. You will see the processing options. You will need to tick the Payrolling checkbox, then you'll see an additional field which is to ask if you have registered - until this is ticked and the year is selected and saved you can't access the Add button.
Create and add Benefit Categories to employees
To create a Benefit Category you will need to click on the Add button.
- Year - Shows the year start date for the benefit to be active for
- Carry benefit forward - Tick or untick the carry benefit forward checkbox, any benefit categories with this checkbox ticked can be duplicated for the next year as part of the year end process
- Benefit type - Choose from the drop-down list of benefit types - e.g. F: Cars and car fuel or I: Private medical treatment or Insurance
- Payrolling benefit - The payrolling benefit checkbox, will be automatically set
Once a benefit type is chosen, a number of fields relating to that benefit type, will appear.
- NI treatment - defaults to the NI treatment for the selected benefit type
- Name - free text field for you to name the benefit e.g. Health insurance
- Annual cost to you or amount foregone - Enter the higher of the annual cost to you or amount foregone by the employee - e.g. £600.00. This value can also be saved as 0.00 if your employees have benefits with varying costs.
- Additional fields for specific benefit category - Fill in these fields with the relevant information required.
- Save button - Saves the benefit category.
Once you have created the benefit category you will need to add benefits to employees.
To do this you will need to navigate to an employee and click on Benefits from the menu items.
Then select the Add button, pick from the benefit categories you have created e.g. Car or Health Insurance. A number of disabled fields will show the values entered at benefit category level.
You will need to fill in the details of the blank fields, the below will assist you to do this:
- Carry benefit forward - this will reflect the setting from the benefit category, if the benefit category is ticked this can be ticked or unticked at employee benefit level. If this is unticked at benefit category level, then this cannot be ticked at employee benefit level.
- Annual cost to you or amount foregone - This will reflect the setting from the benefit category but can be changed if required.
- Amount made good - Add in any annual amount made good from the employee (this is an amount the employee is contributing towards their benefit, add in the whole year value even if this is being paid by the employee each period).
- Cash equivalent - is calculated by the system as Cost to you or amount foregone less Amount made good.
- Calculate benefit from -(only enabled when setting up the benefits before a pay run has been processed) this field will be locked once a pay run, which includes this benefit, has been processed. It is used to calculate the amount to be payrolled per period.
If the benefits are being payrolled, as they are linked to an employee, the system will calculate the amount to be added to the employee's taxable pay each period, by taking the annual cash equivalent, less any amount payrolled to date and dividing it by the number of periods the benefit is available for.
(If a pay run has not been processed for this employee yet, the system will initially need to use the entry in the Calculate benefit from field). NOTE: Once the benefit has been processed in a pay run, the system will know which period to use and you will no longer have access to the calculate benefit from field.
- Amount to be payrolled each period - The amount to be payrolled each period value shows in 2 decimal places, but will be re-calculated in each pay run to account for any rounding differences or changes.
If you have moved to use this software during the tax year and this benefit has already been partially processed in another payroll system, when you initially create the benefit before a pay run is processed, you can add in the amount payrolled to date and set the relevant period number. The calculated amount to be payrolled, based on the information provided, will be shown.
You will also need to add the total amount payrolled to date into the Payrolled benefits field on the Earnings tab of the Employee's Opening Balances under the Earnings tab. When the payroll is processed the benefit will be included in taxable pay, taxed and will show on the payslip.
Pro-rata calculation button
Next to the Annual cost to you field on some of the employee benefits, you will see a Pro-rata button. When pressed, a modal window opens where you can see start and end date fields. You can enter a start and/or end date, in order for the calculator to work out how many days this benefit is available for. It will show you the recalculated pro-rata annual cost to you value. If you are happy with this value you can tick the Use new pro-rata checkbox to update the annual cost to you automatically, when you save the pro-rata modal. If you don't want to use this value, you can leave the checkbox unticked and then set your own value. The benefit will be picked up by the payroll when the benefit falls into the correct pay run.
You can also set the Pro-rata in first pay run checkbox here. If ticked, when the benefit is picked up in the first pay period, a further pro-rata calculation will be performed to work out the number of days in this pay period the benefit was available for, and will amend the amount to be taxed in that pay run.
Any further pay runs will be re-calculated based on the cash equivalent, less the amount payrolled to date, divided by the number of remaining pay periods.
If an end date is entered, then the calculation will work out the number of days the benefit is available and will stop taking that benefit once the end date has passed.
Link benefits to multiple employees (Not Cars)
Once clicked upon, a panel will open showing you the employees the benefit is linked to. To add this benefit to more employees, click on the Add button, a list of un-linked employees will show and you can select which ones to link the benefit to. Once selected click Save. Note, car benefits should only be added from the employee record.
Terminating employees with payrolled benefits
Best practise is to terminate an employee within their final pay run. When an employee has payrolled benefits, entering a termination date within a pay run, will bring in the outstanding amount to be taxed on any benefits. Most benefits are for a full year, so the amount remaining will be added to the last amount of pay and the taxable pay including the benefit values, will be used to calculate the tax. These values will then be reported to HMRC. If the full amount cannot be taxed in this final pay period, then HMRC will be aware of the amount of taxable pay and tax taken, and they will be able to sort any tax owed directly with the employee.
If the benefit is stopping at the same time as the employee is leaving, then you can edit the benefit at employee level and use either the pro-rata dates, benefit date available to, or adjust the cost to you in order to recalculate the amount of benefit outstanding. Once done, this re-calculated value can be seen in the pay run. When an employee has payrolled benefits it is not possible to add a termination date later than the end of the current pay period.
Terminating an employee who has payrolled benefits from within their employee details using the Terminate button, will have no effect on payrolled benefits and as such, any outstanding amounts will need to be reported to HMRC by you, outside of the payroll.
For detailed information on benefits, please refer to the HMRC guidance.