TECHNOLOGY
AI: the extra member of your payroll team
There’s been a surge in the use of artificial intelligence (AI) in payroll processes over the last few years. In this article, Paul Chamberlain, Partner and Head of Employment, JMW Solicitors, provides commentary on the practical benefits of this revolutionary technology in the payroll sector, and considers the risks it could pose from a legal perspective
businesses time when it comes to data entry. Therefore, AI appears to be a useful resource from both a practical and legal perspective in this regard. "Automation of the calculation process should decrease the number of errors made when calculating wages, thus reducing the risk of businesses incurring penalties for non-compliance" As we’re sure readers are aware, if, following an audit carried out by HM Revenue and Customs (HMRC), an HMRC Officer concludes NMW hasn't been paid, they may issue a notice of underpayment. The notice could be set at the maximum penalty of £20,000 per unpaid worker. This penalty brings the importance of accuracy when calculating workers’ wages to the forefront. AI systems can be designed to comply with NMW and national living wage regulations as well as pay as you earn (PAYE) tax calculations. Automation of the calculation process should decrease the number of errors made when calculating wages, thus
reducing the risk of businesses incurring penalties for non-compliance.
Benefits of AI in payroll processes The first potential benefits of using AI in payroll processes are: l the increase of efficiency l the accuracy of wage calculations l swift completion of payroll tasks. Under the National Minimum Wage Act 1998 (NMWA 1998), employers have an ongoing obligation to keep certain records in relation to the hours worked by, and the payments made to, workers. Further, the employer must keep sufficient records to establish that their workers have received the national minimum wage (NMW). AI’s ability to automate the process of data entry and record-keeping in this area is a game changer for compliance purposes. As the NMWA applies an ongoing obligation on employers to keep records, the elimination of human error when inputting and maintaining information regarding working hours and wages means employers are less likely to fall foul of the legislation. In addition, automation will improve operational efficiency for payroll teams and save
Risks of AI in payroll processes We acknowledge that AI is an extremely powerful tool for payroll teams. Its ability to automate data entry, accurately calculate pay based on working hours and efficiently analyse data could make the payroll process quicker and more cost effective. However, the integration of AI into payroll does have some serious pitfalls, which we’ll explore below. The major risk payroll teams face when using AI as part of the payroll process is data protection. Put simply, payroll providers must ensure they comply with the General Data Protection Regulation and Data Protection Act 2018. AI systems are large language models, meaning they learn from the data they examine. In the payroll process, personal data will be processed by AI and used (albeit in the background) to develop the AI’s own examination features. This raises the concern that workers’ data isn’t being used in the way they’ve consented to.
| Professional in Payroll, Pensions and Reward | April 2025 | Issue 109 44
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