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How to Set Up Payroll for Your Small Business

How to Set Up Payroll for Your Small Business

Payroll is an incredibly important aspect of all functioning businesses. However, it’s not something many new businesses owners are familiar with doing unless they have held a senior leadership, accounting or HR role in the past. As such, it can be necessary for you or your team to receive the necessary training and skills to handle payroll matters for your organisation.

The Basics

You’ll need to consider how much help you need with your payroll matters and whether you’re going to use an accountant or external service. You might want to handle your payroll in-house and this might require your accountant or bookkeeper to have knowledge of payroll processes.

This will involve collecting and keeping records of your employee’s details and understanding basic business accounting to make sure your employees’ salaries are always accurately calculated and paid on time. There are various services you can use to help you with this, such as third party companies or software that has built-in payroll services.

If you choose to run or set up payroll yourself, you’ll need a system to report to HMRC. You will also need to do the following:

  • Record your employees’ details
  • Work out your employees’ pay and deductions
  • Report payroll information to HMRC
  • Work out how much you need to pay HMRC
  • Calculate statutory pay, such as sick pay or maternity pay
Steps to Setting Up Payroll for Your Business

1. Register as an Employer

You need to be registered as an employer if you want to set up payroll. You need to do this as soon as you start employing staff or using sub-contractors. It usually takes up to five days to get your employer PAYE reference number and long to complete the process, so it’s worth doing this as soon as possible, regardless of how you eventually choose to handle your payroll.

You can register up to two months before you start paying people and having yourself setup can prevent delays from disrupting your business and your future employee’s livelihoods.

2. Record Your Employee Details with HMRC

HMRC will want to know some basic details about your employees. You must tell them when you take on a new employee and inform them of some basic information, such as whether the new employee needs to be paid through PAYE and their tax code if they have it.

After you have done this, you should be able to find out some key details needed to set up payroll using your payroll software or method of choice.

3. Keep Records

You must keep records of what you pay your employees and the deductions you make, as well as employee leave and sickness absences, tax code notices and taxable expenses or benefits. You will need to keep these records for three years from the end of the tax year they relate to as HMRC may check your records for accuracy and to make sure you’re paying the right amount of tax.

4. Pay Employees and Record Information

Each time you pay your employees, you need to use your payroll software to record their pay, calculate deductions from their pay (such as tax and National Insurance), calculate the employer’s National Insurance contribution, produce payslips for each employee and report their pay and deductions to HMRC in a Full Payment Submission (FPS).

5. Pay HMRC Tax

Your accountant or payroll software should work out how much tax and National Insurance you owe, including an employer’s National Insurance contribution on each employee’s earnings.

6. Complete Annual Reports

In your annual report, you must include your employees’ pay, any payroll benefits and deductions in an FPS. You must update your records before 6 April in order to prepare for the next tax year.

Need Training?

If all this looks like a lot to handle or you’re still confused about where to start, it might be necessary for you or one of your staff to enrol on a training course that helps you to handle various accounting processes for your business.

For example, many of our courses at Total Training Solutions like our Sage training in Leeds, Newcastle and other parts of the UK will help individuals understand the requirements of payroll processing and train them to conduct payroll handling directly within the accounting software.