A business which employs staff should have a robust payroll process set up. You might be ready to take someone on, or you may need to pay yourself as the director of a limited company. Whatever the reason, there’s more to payroll than just paying someone. Get started with our guide to setting up and managing payroll for your small business.
Why does my business need payroll?
Payroll is the broad term which describes the way which someone’s pay is calculated. It involves adding together everything they are due to be paid, minus deductions such as tax and National Insurance.
If your business employs someone, then you’re required to submit information about their earnings to HMRC. The payroll process involves meeting your reporting obligations, along with other essentials such as pensions and providing payslips to employees.
Who do I need to include on payroll?
Anyone that is employed by your business should be included on payroll. If you are the director of a limited company, then you are an employee of the business too. If that’s the case, don’t forget to add yourself to payroll!
How do I set up my own payroll?
There are a few steps to setting up a payroll for the first time, and then managing payroll after that. Typically payroll creation involves:
letting HMRC know that you are an employer
payroll software to record information and calculate pay amounts
paying any deductions made on behalf of your staff (such as tax, National Insurance, and pensions contributions)
How do I register as an employer for payroll?
The first step in getting started with payroll is letting HMRC know that you’re employing someone (even if it’s you). You can register online as an employer, and should do this before running payroll for the first time.
PAYE stands for Pay as You Earn, and is a way of paying income tax and NI contributions. It is the employer’s responsibility to deduct tax and NI from an employee’s wages, and then pay this deduction to HMRC on their behalf.
After registering as an employer with HMRC, you will be sent login details for PAYE Online. This is the online portal where you can send payroll information to HMRC, and make relevant payments. Be warned though, it can take up to five days after registering for the details to come through!
Setting up staff on payroll
To help you pay your employees correctly, there is some information you will need before setting them up on payroll. HMRC have a guide which explains what you’ll need to tell them about your employees. Your payroll records should also store this information, along with their bank details so they can be paid!
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Recording this information is important as it ensures the correct tax code is used, and avoids any gaps in employee’s NI record or student loan repayments.
What records should I keep when running payroll?
Each time you run payroll (so every time you pay your employees) there is information that you must keep a record of.
The records you should keep when running payroll usually include:
How much you pay your employee(s). This might consist of their;
expenses or benefits
other pay such as Statutory Sick Pay (SSP) or Statutory Maternity Pay (SMP)
Deductions that you make, such as;
income tax (PAYE)
student loan repayments
Holiday and sickness absences
Expenses claims and any staff perks or benefits
Information about the reports and payments you provide to HMRC
Payroll records must be kept for a minimum of three years from the end of the tax year which they relate to.
What other obligations do I have when running payroll?
If you are an employer, you are required to collect and make pension contributions for eligible employees. It basically means the employee pays a bit, and the employer pays a bit. There are plenty of pension providers to choose from. NEST, the National Employment Savings Trust, was set up as part of the government’s scheme for automatic pension enrolment.
Clear payroll periods, which you stick to
A payroll period is the length of time for which each payroll is calculated and paid to the employee. For example, a weekly pay period means that staff get paid each week. Consider other cash flow obligations when choosing your payroll period and pay date. This will help make sure that you’ve always got the money to actually pay wages and associated costs!
Provide employee payslips
Payslips must be provided to employees on or before payday, and can be in paper format or electronic. They must show;
Gross pay (all earnings before any deductions are made)
Net pay (the amount that will actually be paid once deductions are made)