Payroll insight
Let’s look at a couple of scenarios to illustrate the impact the payment services regime has on payroll providers. For ease, I’ll call the payroll provider ‘ABC’. Holding funds Scenario: ABC provides a service to companies or individuals who want to simplify their payroll process. In the case of individuals, they may be employing only one person – a carer, for example – and the funding may come from the local council. ABC not only calculates the payments its client must make but also disburses the funds. ABC’s client (or the local authority in the case of an individual employing a carer) transfers sufficient funds to cover the payments into ABC’s client account. If there are any funds left over, ABC will return them at the end of the payroll process or hold on to them and apply them to the next payroll run. Of the fifteen exemptions listed in the legislation, the only one, in my view, that is likely to be applicable for payroll processors is the commercial agent exemption. This applies if ABC is authorised to negotiate or
conclude the sale or purchase of goods or services on behalf of its client. The Financial Conduct Authority (FCA) has recently provided further guidance on what this means: “In our view, you have the authority to conclude the sale or purchase of goods or services on behalf of the payer or the payee only if you have the authority to affect the legal relations of your principal, who is the payer or the payee, with third parties and to bind the payer or payee to a purchase or sale of goods or services. This would not be fulfilled simply by providing the technical means by which a payer places or a payee accepts an order.” their client, it probably has a commercial agency relationship with its client and will not be providing regulated payment services. However, if the commercial agent exemption doesn’t apply then it is likely that ABC is providing payment services and possibly even issuing e-money because ABC is holding funds over which there is In other words, if ABC selects and appoints the carer or employees for
no payment instruction, albeit there is an intention to use the funds for payment transactions at some point. Initiating payments Scenario: ABC provides a service to its clients where it calculates the payments that are to be made and then sets up the payments from the client’s payment account. Given the newness of the regime, this scenario is trickier to determine. The FCA publishes perimeter guidance on the application of the regime to help firms determine whether they are in or out of scope. In this case, though, the guidance is limited: the only use case given is that of providing merchants with an alternative to accepting card payments. Clearly, this is not applicable in the payroll provider case above. For its part, the government, in its feedback on the consultation process, said that it wanted to draw a ‘broad interpretation’ of the definition but also did not provide examples. Instead, the government noted that the FCA will have to give guidance on a case-by-case basis. n
National MinimumWage and other worker entitlements
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| Professional in Payroll, Pensions and Reward |
Issue 40 | May 2018
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