Growing your business from a one-man band to even a 4-5 member team is a huge and exciting achievement, but it’s one that comes with added responsibilities.
As a small business owner with paid employees, you’ll need to manage and set up payroll for your staff so they can get paid the correct sum of money on time, and you can keep track of your outgoings.
If you’ve not had to implement payroll for your employees yet, it can be a confusing process. With this in mind, we’ve put together a handy Q&A guide to help you make sense of it all, so you can spend less time figuring out how to pay, and more time getting paid.
What is payroll?
Payroll is the broad term which refers to the process of paying employees the right amount of money for their employment. Employees working in the UK have to pay taxes such as National Insurance. These taxes are deducted from a salary during the payroll process and sent to the government through the PAYE process, as part of the HMRC.
Do I need to implement payroll?
If you are not a sole trader and you have employed staff, (even if it is just one), you should have a payroll process in place to ensure that they will be paid accurately, on time, and are complying with tax laws.
How do I register employees at my business?
If you’ve ever signed a contract of paid employment, you’re now an official employer you need to register your business with the HMRC here.
Most documentation is now available online and can be completed digitally. You must do this before your first payday, so bear in mind that it can take up to at least five working days to process.
Is PAYE the same as payroll?
No, PAYE (Pay As You Earn) is a system that the HMRC uses to collect income tax from your employees. Usually your payroll system will calculate the right amount of PAYE that each of your staff should be paying and this is deducted to give them a net salary.
Typically all of your employees will need to be registered for PAYE, however, there are some exceptions. If none of your employees are earning £118 or more each week then they are exempt from PAYE.
You can find out more about PAYE on the HMRC website.
Should I outsource my payroll to an accountant?
If you are already using an accountant to manage your business finances and taxation, it makes sense to allocate them your payroll. However, if you can afford an easy-to-use payroll software solution and have the resource to manage it yourself, this will allow you to have complete control over your payroll at all times.
What do I need to keep track of?
Payroll isn’t as simple as paying your employees their salary each week or month, it’s a crucial business process which monitors everything from your employee’s pension contributions, taxation, expenses or bonuses, as well as any paid leave they are entitled to. This could include:
- Annual leave
- Maternity/paternity leave
- Medical/sick leave
- Public or religious holidays
When should I pay my staff?
There are no laws on when employers should pay their staff, as long as once you’ve decided on a frequency, you must remain consistent and meet these deadlines.
As a standard larger businesses will pay their employees monthly and during the last week of the month when they will also pay the HMRC the taxes collected.
However, to help small businesses better manage their cash flow and stay afloat, those that pay out less than £1,500 per month can arrange to pay their PAYE quarterly. This is not a default though and needs to be pre-agreed with the HMRC either via the phone or online.
What do my employees expect from a payslip?
Employees’ payroll data should be kept in confidentiality as it is highly personal, and therefore compromising it would be breaking GDPR laws. It’s crucial to let your employees know that their data is secure.
Alternatively, payroll is a process that needs transparency and each month your staff need to see their payslips, either physically or digitally so that they understand if they have been paid the correct amount and the necessary taxes have been deducted.
Payslips should typically include:
- Earnings before any deductions (gross amount)
- Hours or days worked
- Total amount of deductions
- What these deductions are (National Insurance, pension etc.)
- Total earnings after deductions (net amount)
What legal requirements does my payroll need to adhere to?
It’s your responsibility as a business owner to keep on top of important employment laws and legislation in the UK to make sure you are compliant.
For example, last year the National Living Wage for workers aged 25 and over increased by 5% to a new hourly rate of £8.21. Other important things that are bound to legislation and often reviewed are:
- Working hours and lunch breaks
- Shift patterns
- Annual leave
- Maternity/paternity leave
- Pension contributions
- Expenses (e.g. uniform subsidies)
- Taxations
We’re under no illusion that payroll is an important, yet often tedious and complex process which varies from business to business. The above fundamentals however should help you better understand what is necessary in order to pay your employees on time, as well as the HMRC.
If you’re growing your business and need a hand unravelling tax fundamentals check out our guide to VAT here.