One of your responsibilities as a new employer is to pay staff the right amount, and on time, through your payroll. Whether you decide to run payroll yourself in-house or outsource it, our guide answers frequently asked questions about setting up and running payroll.
Your payroll is a record of all the people in your business, and how they’re compensated for the work they do. The process of ‘running’ payroll describes the way in which pay is calculated, documented, and reported, and can consist of:
Deducting an employee’s tax and National Insurance and paying it onto HMRC along with your own contributions as an employer
Complete managed payroll service
From just £12.00 per payslip
How do I set up payroll?
It’s up to you whether you set up and operate payroll yourself in-house, or pay someone else to run it for you.
Outsourcing payroll to an accountant or payroll provider normally means they’ll take care of the entire process for you, including setting everything up with HMRC. If you prefer to manage payroll yourself, you will need to:
Tell HMRC you’re an employer and register for PAYE – even if you’re the only person on the payroll!
Decide which payroll software to use so you can record, calculate, and report your employees’ pay
If your new employee doesn’t have a P45, ask them to complete a new starter checklist so you can collect the information you need to set them up on payroll correctly.
It’s crucial to record this information accurately. For example, it will help you operate the right tax code against your employee’s pay. You’ll normally need their:
Full name and address
Date of birth
Sex as shown on birth certificate or gender recognition certificate
National Insurance number
The date they start their employment with you
Confirmation of previous jobs held this tax year (or will have alongside this job)
Student or postgraduate loan status
You don’t have to send the new starter form to HMRC. Instead, you should include the details of any new employees or leavers when you make a Full Payment Submission (FPS) as part of your PAYE reporting obligations.
How do I pay an employee?
You can use your payroll software to work out how much an employee should receive each time you pay them, and what deductions to make. On or before each payday you should:
Record their pay: This might consist of their salary or wages, bonuses, other pay such as holiday pay, or a combination.
Calculate deductions: How much the employee owes, such as income tax, National Insurance, pension contributions, or student loan repayments
Work out your own contributions: Employer’s National Insurance, or pension contributions, for example.
Provide each employee with their payslip:An employee’s payslip confirms how much they will receive on payday, and shows how this amount is worked out along with any deductions made.
You can choose how often you will run payroll and pay staff, but you must confirm this in their contract and pay your employees on that date. Employees can take legal action against you if their pay is late.
How do I pay what I deduct from employees?
You can pay PAYE deductions and employer contributions online or by post. The payment deadline is the 22nd of the following tax month for online payments (or the 19th for postal payments).
For example, if you report payroll data for a tax month starting 6th March until 5th April, you’ll have until 22nd April to pay online.