Life as a small business owner is never dull - you’re always spinning multiple plates - so when the time comes to grow your workforce, take on employees, and start delegating some of your to-do list, it’s exciting.
But as can often seem the case in business it’s not all fun and games, while you’re giving yourself less to do on the one hand, you’re adding an extra responsibility on the other, and that’s setting up and managing payroll.
We understand that just because you’re passionate enough to run your own business, it doesn’t necessarily mean you’re super knowledgeable about all the finer details, so we want to give you one less thing to do.
In this article, you’ll find everything you need to know about payroll - what it is, how to set it up and manage it going forward - so you can spend less time worrying about paying your workforce and more time realising your small business’ potential.
In a nutshell, payroll is the process of paying your staff the correct amount of money for their employment. Simple, right?
Employees working in the UK must pay taxes including National Insurance Contributions (NIC) and income tax, and these are deducted from their take-home pay during the payroll process.
As part of HM Revenue and Customs (HMRC) these deductions are then sent to the government via the PAYE process.
It’s not uncommon for people to confuse payroll and PAYE but they’re actually separate entities that work hand in hand.
Pay As You Earn (PAYE) is a process used by HMRC to collect income tax from UK employees.
It is the payroll system which calculates the correct amount of PAYE that each employee ought to be paying, and this is deducted to leave them with their net pay.
Nearly all UK employees need to be registered for PAYE, except those earning less than £118 per week.
Any business that is not a sole trader and employs at least one member of staff.
This is to ensure they’re compliant with tax laws, get paid on time, and get paid the right amount of money.
The first step to getting the ball rolling is registering as an employer with HMRC - once you’ve done this it will take up to five working days to receive your PAYE reference number and online login details. From there you can set up payroll.
First things first you need payroll software to report to HMRC, as this will help you to:
There are multiple payroll software options available to choose from which HMRC tests to check if they can report PAYE information both online and in real-time (this is referred to as RTI).
You can opt for a free payroll software if you have fewer than 10 employees, or paid for software which has been both tested and recognised by HMRC. But, it’s important to carefully consider what you need payroll for, and bear in mind that some software doesn’t allow you to:
Top tip: if you ever decide to change your payroll software, find out what you need to do here.
If you already pay an accountant to handle your finances then it might be a good idea to pass over the responsibility of handling payroll to them. If not, ensure you have the resources to handle it yourself - this will allow you complete control at all times which is a selling point for some business owners.
We totally understand it all sounds a bit daunting, and lord knows there are more acronyms then you can shake a stick at, so we’ve put together a list of common questions business owners have relating to payroll to make things that bit simpler.
There’s no right or wrong answer here and no laws dictating how often you pay your staff. It could be weekly, bi-weekly, or monthly, but what is important is that once you’ve decided on your pay increments you stick to them and don’t miss the deadlines.
Generally, especially for larger businesses, they opt to pay HMRC at the same time they pay their workforce - at the end of each month, but there are instances where businesses may pay their PAYE quarterly.
To qualify, you need to pay out less than £1,500 a month but remember this is not a default and you’ll need to get in touch with HMRC to set this up.
As a small business owner and employer, you are responsible for keeping on top of legislation and employment laws in the UK and ensuring you’re compliant. This could include things relating to:
For example, on 1st April 2020, the National Living Wage for workers aged 25 and over was increased to £8.72 an hour and you as an employer would be expected to both be aware of that change and amend your payroll to honour it.
Top tip: there are some super useful resources, such as the CIPD, for keeping abreast of the latest changes to employment law.
Payroll data contains extremely personal information and as such needs to be kept in strict confidentiality in line with GDPR laws (another acronym, oh the joy) - a data breach could incur a pretty heft fine.
However, your employees themselves need transparency, so for each payment, they need to see their payslip which should include information on:
You can choose to present the payslip physically or digitally, but you must let your employees see it so they can check they’ve been paid accurately, have details of the deductions, and raise any issues they may have.
We totally get it’s a complex process that requires thought and effort on your behalf, and one which can vary from business to business, but hopefully we’ve provided the information you need to tackle payroll with confidence.
For loads more information, guidance, and top tips for small businesses check out our blog or reach out to one of our friendly experts to discuss all things payment today.