As small business and employer, no matter how busy you might get, paying your employees timely and accurately is one of your biggest responsibilities.
Generally payroll refers to the process of calculating an employee’s pay. This process includes:
Calculating net and gross pay, SSP and National Insurance
- Calculating PAYE*
- Making the appropriate deductions from pay, including income tax and National Insurance
- Paying employees and providing them with pay slips
- Submitting information to HMRC
Here are some basics steps to follow to get you started:
Register as an employer:
You need to register with HM Revenue and Customs (HMRC) when you start employing staff, or using subcontractors for construction work. Registration link
Choose how to run payroll
You can operate PAYE by either:
- paying a payroll provider to do it for you
- doing it yourself using payroll software
Your records must show you’ve reported accurately, and you need to keep them for 3 years from the end of the tax year they relate to. Records to keep include:
- what you pay your employees and the deductions you make
- reports and payments you make to HM Revenue and Customs (HMRC)
- employee leave and sickness absences
- tax code notices
- taxable expenses or benefits
- Payroll Giving Scheme documents, including the agency contract and employee authorisation forms
Note: failure to keep full record will incur penalties from HMRC
*What is PAYE
‘pay as you earn’ – refers to income tax which is deducted from an employee’s salary before they are paid.
The money is sent to HMRC by the employer ‘at source’ – meaning directly from the employee’s pay before it reaches their account. National Insurance and student loan repayments may also be deducted in this way.
Disclaimer: this article is only intended as an overview of the legislation. You must always check directly with HMRC, ACAS or your own legal consultant for further information.