Hiring someone to work with you or for you can be a difficult process, making sure they get paid shouldn’t be. This is a vital part of having a company or any form of employee working for you as not being able to pay people promptly or consistently will be a major reason for them looking for work elsewhere.
Understanding payroll can be a tricky thing for you to wrap your head around and can feel a little overwhelming, but, by following these tips you’ll be able to ensure that your payroll system runs in a smooth manner.
Payday
The first decision you’ll probably have to make will concern the dates when your employees get paid and how frequently. Picking the beginning and end dates of this schedule is your pay period and it is usually either done on a weekly, fortnightly or monthly basis. Essentially, the period determines the hours of work time your staff has logged or the wages they have earned in this time frame.
Payday exists as the day on which your employees are paid for their services and, for tax purposes, paydays are used to determine the period in which you need to pay and file your payroll taxes. It is your legal obligation as an employer to deliver what’s expected when payday comes around.
Taxes
Besides delivering employees’ wages on time, your payroll system should also be responsible for everything from monitoring holiday pay to statutory sick pay and bonuses. Each time you run the payroll, the government requires you to record employees’ National Insurance and tax and report it online under the Real Time Information PAYE system. If this doesn’t happen on time, or there are data inaccuracies your business could face penalties, some of which could be financial in nature.
Registration
Employing the company’s first member of staff changes your legal rights and responsibilities completely. It is important that HMRC is made aware when this happens, which means that you must inform them up to four weeks before your employees’ first payday.
If you’re acting as the sole director of a one-person company, you are still considered to be an employer and therefore need to register yourself in the same way. The only exception for not having to go through this registration is if the employees that work for you earn £112 a week or less.
However, this exemption does not apply if any employees have another job or receive a pay rise which pushes their weekly income over this threshold.
Employee Details
You must also collect basic information on each employee. This includes their full name and address, NI number, date of birth and gender. This information is a fundamental requirement and allows all employees to be paid through PAYE.
Each employees’ P45 displays their tax code and details of pay-to-date and tax-to-date from previous employment. If an employee doesn’t have a P45, they will need to fill out an HMRC starter checklist.
Operating payroll
There are several ways to manage your companies’ payroll system, with many options that best suit small business owners.
In very small companies, it may well be a director’s responsibility to do in-house payroll themselves, but larger firms may have specific individuals or departments to take on the role.
If you opt to do payroll internally, there are a few things to be aware. You need to be aware of all laws relating to minimum wage and the way in which HMRC enforces them.
A convenient and time-saving method of accounting is through using payroll software. This calculates NI and tax, as well as printing payslips automatically each month. It also saves you from sending the information to HMRC as it is done automatically alongside all P45’s, P60’s and other employee documentation required each month.
PAYE deadlines
When conducting payroll, remember that HMRC has important deadlines running throughout the year. Tax and NI payments must be received by HMRC by the 19th of each month, unless done electronically, in which case the deadline extends to the 22nd.
Employees who have received any workplace benefits must also receive a receipt in the form of a statement of ‘payrolled’ benefits by the 6th July. This includes any taxable benefits and their cash equivalents.
Staying secure
As with most monetary-based systems, payroll is often vulnerable to fraud. To prevent being a victim, avoid having one single person responsible for the whole system.
Having an extra member of staff responsible for part of the load is recommended, and always ensure payments are signed off by a director or direct supervisor who has been allowed to authorise payments.
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