New Year payroll crisis warning to UK employers

Thousands of UK workers could face delays in getting paid in the New Year if employers fail to meet a December deadline for switching to a new secure payroll system that allows them to pay salaries directly into bank accounts.

Over 90 per cent of UK salaries and an increasing proportion of government social security benefits are paid automatically into bank accounts through the Bacs clearing house, which is switching over to a new IP-based system from 1 January 2006.

But Bacs is warning of a potential payroll crisis because, with just over four months to the cut-off deadline, around 35 per cent of firms have not yet started the migration to Bacstel-IP.

The new Bacstel-IP replaces the existing Bacs private telecoms network used by businesses and will be secured using public key infrastructure (PKI) and smart card technology to authenticate users and encrypt payment instructions to the clearing house.

Mike Hutchinson, marketing manager for Bacstel-IP, said that while most large organisations such as utilities and local authorities have migrated to the new system, a huge number of small and medium-sized businesses (SMEs) have not even started thinking about it.

"Small businesses really haven't picked up on this in the same way the large organisations have," he said.

Many of those firms that haven't started the migration process use a commercial payroll bureau and will simply need to fill in a form to make the switch but with the clock ticking fast the rest face a three month IT upgrade.

Those firms who miss the deadline will be unable to pay salaries automatically into employees' bank accounts and may end up having to pay staff late with cash and cheques. That, in turn, could lead to thousands of workers going into overdraft when bills and other direct debits and standing orders go out of their accounts at the beginning of the month.

"If any organisation keeps their head in the sand [and misses the December deadline] they must speak directly to their sponsoring bank. There isn't another Bacs - they will have to go back to cash and cheques to pay employees," warned Hutchinson.