How do I move from BACS to Faster Payments for payroll?

It’s an undeniable fact that businesses need an efficient and reliable payroll system to ensure their employees are paid accurately and on time.  When paying employees' salaries in the UK, employers mainly use one of two payments systems - BACS and Faster Payments. This article will give more insight into the two payment systems and explore both systems' characteristics, benefits and steps involved in making the switch.

What is BACS?

BACS stands for Bankers' Automated Clearing Services and is a legacy payment system, including payments for outsourced payroll.  It was introduced in 1968, making it a long-standing player in payment processing. BACS payments are known for their reliability, but BACS does have some limitations.

Probably the most important aspect to consider with BACS is the time it takes for payments to reach the recipient's account. BACS usually takes three business days to clear, making it less suitable for situations where immediate funds transfer is crucial.

Pros of using BACS:

‍Reliability: BACS payments are known for their stability and long-established presence in the industry

‍Cost-Effectiveness: BACS transactions are often more cost-effective for businesses compared to some alternatives

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Cons of using BACS:

‍Time-Consuming: The three-day processing time can be a significant drawback for businesses with urgent payroll needs

‍Limited Flexibility: BACS is not the best choice for emergency or ad-hoc payments, as payments have to be scheduled days in advance

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What is Faster Payments?

Faster Payments is the modern way to send money electronically in the UK. It was introduced in 2008 and is an almost instantaneous transaction between banks, with money usually reaching its destination within a few hours or even minutes.  Faster Payments is great for businesses because it leaves them more time to check, run payroll reports and process payroll. It also offers businesses the chance to resolve any payroll queries or errors very quickly and can help employees with urgent money needs, such as emergency payments, salary advances or quick payments for expenses incurred via flexible payments.

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What are the benefits of paying staff via Faster Payments?

Paying staff via Faster Payments comes with several notable benefits, making it an attractive option for businesses looking to enhance their payroll processing. Some key advantages are: 

‍Rapid Payments: Faster Payments is a more responsive solution for making payments of any kind and offers a quick solution for correcting errors in payroll or making emergency payments

‍Flexibility: The near-instant processing time allows employers to finalise payroll later, providing extra time for scrutiny

‍Emergency Payments: Faster Payments can be a lifeline in situations where employees need urgent financial assistance as money can be in their account within a couple of hours

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By adopting Faster Payments, businesses can streamline their payroll processes, respond quickly to errors and meet the immediate financial needs of their employees. These benefits contribute to a more efficient and employee-centered payroll system, which increases overall workplace satisfaction and operational efficiency.

Which banks accept Faster Payments?

Nearly all banks in the UK can accept Faster Payments. Some banks, however, are direct participants of the scheme, whilst others require a third-party sponsor to participate. 

You can use this handy sort code checker from Starling Bank to see if your bank can accept Faster Payments.

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Moving from BACS to Faster Payments for payroll

As a business owner looking to change from BACS to faster payments for your payroll, you’re making a strategic choice to increase efficiency and flexibility.  Some practical steps to guide you through the process:

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Service Availability: Check if your payroll provider offers Faster Payments as a service.  It’s important to do this before proceeding as not all providers offer Faster Payments as part of their core offering.

‍Fees: Some payroll service providers charge per employee per pay run for the Faster Payments service.* Understanding the cost structure is vital to avoid any unexpected expenses and to be able to budget appropriately. Costs for paying employees may rack up when service providers charge for the service, especially for employees paid weekly or fortnightly.

‍Timeframe: Discuss the timeframe to change from BACS to Faster Payments with your provider. It's essential to ensure a smooth move without disrupting your payroll schedule.

‍Testing: To make sure the system works smoothly and your employees receive payments as expected, it's advisable to run Faster Payments tests with a small number of employees before transitioning the whole workforce to the payment system. 

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Moving from BACS to Faster Payments for payroll is a decision that can greatly benefit businesses, offering more flexibility and speed in processing payments. It’s a step toward a more agile and responsive HMRC recognised payroll system that can better serve your employees and your business.  It’s important, however, to plan the move carefully, considering factors like service availability and associated fees. The future of payroll processing lies in faster and more efficient payment systems and Faster Payments is at the forefront of this service offering.

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If you have any questions or need more help moving to Faster Payments, you should contact your payroll service provider. They’ll guide you through the process, ensuring a smooth move that meets the needs of your business.

Please contact us if you're interesting in having a demo of PayCaptain. Our solution has two core aims - to make payroll easy for employers and to improve the financial health and resilience for employees. Our functionality includes payroll savings, SmartPay and interest-bearing savings pots; flexible payments for quick and easy repayment of expenses and bonuses and payment splitting direct from net pay - ensuring important payments are never missed; salary advances and on-demand pay from accrued payroll as well as exceptional employee support from our expert payroll team.

Helping employees to understand their pay and rewards, PayCaptain offers online payslips through the PayCaptain mobile payroll app as well as the world's first Plain Numbers-certified payslips, helping those with poor numeracy and financial literacy to improve their understanding and resilience. These important employee financial wellness benefits, combined with other tools, financial advice and support from MoneyHelper, give responsible employers the opportunity to help and support their employees.

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*Faster Payments is part of the core offering from PayCaptain and is included, as standard and at no extra cost, in our fast and efficient AI powered payroll solution.

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