A History of the Payroll System

Posted on Wednesday, 18th May '22

Duane Jackson by Duane Jackson

How did Modern Payroll Come About?

Modern payroll systems have come a long way from the historical payroll records that have been discovered and, like all digitized functions, they will keep evolving as time goes on. To better predict how payroll systems are likely to change in the future, it’s helpful to have a good understanding of where they’ve come from.

This guide covers the history of the payroll system, which offers an overview of everything that’s been involved in this important process so far.

7000 BC: Earliest Recorded Payroll System

Also discovered was that in the fifth century, the ancient Greeks of Athens used a payroll system to keep their business books in order. Evidence suggests that clerks or treasurers kept financial records, including pay details, by chiselling the information into stone.

The earliest recorded payroll systems used bartered items or assets rather than monetary pay; these could have been grain, salt, other foodstuffs, or clothes and land. It wasn’t until later that, to denote money, they used paper notes and coins.

1799: Payroll System History Evolves

Since these ancient times, the next known considerable change to payroll systems in the UK came with the Industrial Revolution in the 18th century and specifically the introduction of income tax in 1799. The then Prime Minister, William Pitt the Younger, announced that all incomes over £60 per year would be taxed between 1% and 10%, with those earning over £200 per year being taxed 10%.

The introduction of income tax meant that employers and employees needed more comprehensive and reliable documentation to keep track of payroll because the Industrial Revolution resulted in mass production and consequent mass employment. This meant that all stakeholders relied on the financial documentation that came with payroll systems.

Also, during this time, banks were becoming increasingly more accessible to the masses, meaning people could save, spend, and record what happened to their money more easily than before. As both businesses and individuals demanded accurate financial data records, this went hand in hand with developing payroll systems.

Key payroll legislation in the 19th Century:

  • The Act of 1799 – Just before the turn of the 19th century, this act introduced income tax to the UK.
  • The Factory Act (1833) – This act made it illegal to hire children under the age of nine.
  • Slavery Abolition Act (1833) – This act criminalised slavery and the non-payment of workers.
  • The Factory Act (1878) – This act stipulated that no workers in any trade could be under the age of ten.

1950: Payroll Systems in the 20th Century

During the 20th century, payroll legislation in the UK changed frequently. All employers then faced growing demand to document all outgoings, including pay. Accurate and reliable payroll systems became necessities rather than luxuries.

Until the 1950s, payroll systems were reliant on pen and paper. However, this year, the first computerised system – Lyons Electronic Office (LEO) – was introduced to provide businesses with assistance for clerical tasks (including payroll).

Key payroll legislation in the 20th Century:

  • The Old Age Pension Act (1908) – ensured that the elderly received a state pension.
  • The National Insurance Act (1911) – offered workers benefits if they were unable to work.
  • Contracts of Employment Act (1963) – gave workers rights to contracts and notice of termination of contracts.
  • Redundancy Payments Act (1965) – workers were now entitled to a payout if they were dismissed.
  • National Minimum Wage Act (1998) – ensured all employees received a fair, minimum wage.

2021: Payroll Systems Today

Over time, as with all digital services, payroll systems have seen many developments. Today, companies can choose from a multitude of software.

The Staffology origin story reveals that our innovative thinking kept us one step ahead over the years. Starting in 2004, founder Duane Jackson wanted to find user-friendly accounting software for his business. After an unsuccessful search, Duane identified a gap in the market and created KashFlow – the UK’s first SaaS accounting application.

When cloud-based software started to gain traction, other companies soon began marketing competing software. But since then, Duane has used his expertise in SaaS and web development to create a new piece of software; Staffology.

Staffology is a web-based payroll software that boasts a comprehensive API, meaning you can use it seamlessly with other accounting software, including Sage and Xero.

Key payroll legislation in the 21st Century:

  • National Minimum Wage Act (1998)
    Under this act, a minimum wage applies to all workers across the United Kingdom.
  • Working Time (Amendment) Regulations (2007)
    Increased the statutory annual leave entitlement to 28 days.
  • Pensions Act (2008)
    This act ensured that all employees had access to an auto-enrolment pension.
  • The Occupational and Personal Pensions Schemes (Automatic Enrolment) Regulations (2010)
    All employers must offer a workplace pension, automatically enrolling eligible workers – helping them save for retirement.
  • The introduction of RTI (under the PAYE system) (2013)
    A way of reporting PAYE, RTI means that employers must submit every time an employee is paid, rather than annually.
  • Deduction from Wages (Limitation) Regulation (2014)
    This set a two-year maximum period during which deductions from wages could be claimed.
  • National Minimum Wage (Amendment) Regulations (2016)
    These regulations introduced the National Living Wage.
  • Finance Act (2017)
    The Finance Act (2017) made public authorities responsible for acknowledging the status of any contractors hired and paying taxes on their behalf, if necessary.
  • Finance Act (2020)
    With this act, medium and large private sector companies became responsible for acknowledging the status of any contractors hired and paying taxes on their behalf, if necessary.
  • Off-Payroll Working (IR35) (2021)
    This established a broad rule that expects contractors to pay similar amounts in Income Tax and National Insurance contributions as employees.
  • The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020
    These regulations established the rules of furlough, or how an employer can put staff on temporary leave during coronavirus (COVID-19).
  • Health and Social Care Levy (Updated 2021)
    A tax scheme in the UK that will establish extra health spending (which amounts to a 1.25% tax on the earnings of employees, the self-employed, and employers).

The Future of Payroll Systems

In the future, having evolved from stone tablets to cloud-based software over thousands of years, payroll systems are likely to develop even further.

The most modern payroll software, like Staffology, allows for automated payroll processing. This means there is no need for reams of data to be manually input each time you need to pay staff. That’s not to say that company payroll teams will become obsolete, but they will have a new focus on the business, its employees, and overall goals. Payroll teams won’t be any less busy, but they will be more productive. As well as saving time, automated payroll processing also means fewer errors, and the overall process is more accurate than ever before.

Looking to the future, as new technology is built, processes could become even smarter. Whether this is with more helpful integrations or with the incorporation of AI technology, we are eager to wait and see what’s in store.

Would your company benefit from the latest in payroll system software? Don’t let your payroll become outdated – bring your systems up to speed with Staffology’s modern payroll solution. Talk to our team today to find out how the design of Staffology will help your business.

Duane Jackson, May 18th, 2022

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