Employers must immediately report to HMRC their PAYE information. This is called Real Time Information. RTI is the requirement that you report to HMRC each time you pay an employee. This guide will help you set up your Payroll.
You’ll need to learn about Payroll and administration if you are a small to a medium-sized company looking to hire your first employee or expand your team.
While hiring employees is a great step in growing businesses, Payroll can be confusing and time-consuming. There’s much more to Payroll software for small businesses than just paying employees. You will need to account for the deductions of each employee, use PAYE, and ensure compliance with a pension contribution and other legal obligations.
Don’t worry; we can help you get started managing Payroll so that you can return to managing your staff. Please look at our guide to payroll management for small and medium-sized businesses.
What is Payroll?
In its simplest form, Payroll is the list and amount of workers and employees a company must pay. It also includes the total wages and salaries a company pays its employees.
Payroll functions include:
- Calculating the pay for all employees on the Payroll
- As required, deduct taxes, National Insurance, or other legal obligations.
- Payout staff via bank transfer, cheque, or cash on the due date.
- Each employee’s record keeping, including deductions and pay year-to-date.
- Making payroll tax payments and submitting HMRC reports on time.
How do you follow the Payroll Processes when you hire an employee?
There are a few things that you should do for each employee you hire, regardless of whether you are looking to recruit your first employee or grow your existing team. These are the steps you need to follow to comply with payroll regulations.
- Register as an employer with HMRC.
- Register online to apply for a PAYE login.
- Create a Pay as You Earn (PAYE) payroll scheme. A payroll provider can do this.
- Set up some payroll software to manage the process.
Register the new employee for National Insurance.
Register your new employee at HMRC by submitting a Full Payment Submission.
Although these may seem daunting, this is only one part of the process. Other responsibilities may include setting up employer’s insurance or creating employment contracts.
What is PAYE?
To allow HMRC to take income tax and National Insurance deductions from your employees, you must include PAYE in your payroll process. Other deductions may also need to be taken, such as
- Repayments on student loans
- Contributions to pensions
- Payments for child maintenance
- It all depends on the payment period you choose.
If you decide to pay monthly, ensure that you have paid HMRC the full amount of your PAYE bill by the 22nd of each month.
You can choose to pay quarterly if you wish. However, you must pay your PAYE bill no later than the 22nd of each month following the quarter’s end.
What is the process of completing Payroll for a small or medium-sized business?
Payroll is a complex process that involves many tasks. A small- or medium-sized business owner must do the following before or on payday:
- The employee’s hours worked and the pay rate is the basis of their pay.
- Calculate all deductions, such as income tax and National Insurance.
- Calculate how much employer’s National Insurance you will need to pay.
- Staff members can be provided pay slips.
Report pay and deductions within a Full Payment Submission submitted to HMRC.
Employers must immediately report to HMRC their PAYE information. This is called Real Time Information (RTI). RTI is the requirement that you report to HMRC each time you pay an employee.
So Payroll is a monthly process?
Yes, and no. While you will have a weekly or monthly payroll routine, you must also perform annual tasks. You must complete many tasks each year, including sending out your final payroll report and updating tax codes. These are some of the tasks that small and medium-sized business owners must accomplish each year.
Send your final payroll report.
You must send your final full payment submission at the end of the tax year. The deadline is April 20.
The HMRC receives this Full Payment Submission detailing all payments to employees and any deductions, such as income tax and National Insurance contributions.
Payroll should include all employees that you have paid during a tax year. It also includes any employee who worked for you but has since left. The HMRC has detailed guidance for you on dealing with new and departing employees.
Make sure to update your tax codes and payroll records.
The correct tax code will be required for the new tax year. You should also update your payroll software accordingly. HMRC will contact you between January and March to inform you of any new tax codes that apply to employees. Inadequate tax payments can result in unhappy employees and unpaid taxes.
Updating Tax Rates and Thresholds
New thresholds and rates for income tax, National Insurance, and student loan repayments will be added each tax year. This will ensure that accurate payment are made.
Claim Your Employment Allowance
Employment Allowance is a program that helps small businesses reduce their National Insurance costs. You must claim it each tax year if you are an eligible company. Your Employment Allowance amount will be displayed on your HMRC online account.
What employer contributions do you need to pay towards the employee’s PAYE?
Employers will have to make Class 1 National Insurance Contributions for their employees. The government website provides information about the rates and thresholds of employers’ Class 1 national insurance contributions.
What about Workplace Pensions
No matter your company’s size, you are responsible for ensuring that a workplace pension is compliant for all employees. There are many things to consider, including auto-enrolment, annual pension-based duties, and pension reviews. You risk being fined by The Pensions Regulator if you fail to complete these tasks. This is especially true if your scheme isn’t in compliance with the law.
This will all need to be considered and planned for in your payroll program.
What Payroll Records Should I Keep?
You need to keep many records about your employees’ Payroll. This is enough to keep HR departments busy for the entire year. These are just a few things you need to keep track of:
Pay to employees. This includes all employee pay, bonuses, benefits, and expenses.
Employees may be subject to deductions. This includes:
- Contributions to taxes
- Contributions to National Insurance
- Repayments for student loans
- Contributions to pensions
- Child maintenance payments
- HMRC receives reports and makes payments
- Leave and sick absences for employees
- Tax code notices
- Benefits and expenses that are taxable
- Evidence that all employees have been paid the minimum wage
These records are vital in the case of a PAYE compliance review. HMRC may request your records up to three years after the tax year you relate to.
What Payroll Tasks to be completed when an Employee Leaves the Company?
If an employee leaves your company, many payroll tasks must be done. These tasks include:
HMRC should be notified that your employee has left your company.
Inscribe the employee’s date of resignation on the payroll record.
Verify that the final wage pay and deductions are correct. These should be listed as normal in your next Full Payment Submission.
You’ll also need it outside of Payroll.
Consider whether your employee is best to give payment in lieu or work the notice period.
If necessary, arrange for cover or begin the process of hiring new staff members.
Discuss the notice period and details about their last day at work.
It would help if you managed any contractual holidays that have not been used. You can decide to pay the employee or force them to take a vacation.
How can I avoid making mistakes with my Payroll?
In any workplace, quality assurance is crucial. It is also essential to avoid potential payroll problems. There will be mistakes. They will happen. It is your job to ensure systems are in place that reduces errors and fix them quickly. Here are some suggestions to help you avoid payroll problems.
Invest in the right tools. A robust and flexible payroll software in Chennai is the best way to prevent payroll errors from disrupting your business. You could outsource the task to a specialist company if you struggle with it.
Know your stuff. Payroll administration lacks the right information or has insufficient information. This is why many payroll mistakes are made.
Before you, Payroll, run reports. If you have payroll software, you can run a few reports before you process payroll to catch mistakes and avoid them.
A checklist is a must-have. A checklist is a must-have. Even though they have software to assist them, payroll administrators still have a lot of work.