Consideration has been given for the editing and publishing of this post
Employers have a lot of responsibilities to their employees. They must provide a safe working environment, guarantee rights such as paid holiday and, above all else, pay them a wage. The last part needs to be done within the confines of the law, ensuring that each employee pays the right amount in tax, National Insurance and pension contributions.
Running your company’s payroll legally may seem like hard work, but it can be broken down into a few simple steps. Firstly, you need to operate PAYE if any of your employees earn more than £113 per week. This can be done using your own system or by using payroll software.
The next step is to register as an employer with the HMRC. This makes it easier to inform them of how much you need to pay them in tax, as well as report every month. On top of that, you need to send the HMRC an annual report at the end of each tax year by the beginning of April.
As part of these reports, you need to work out what you need to pay each employee and what, if anything, should be deducted for tax, National Insurance, pensions and student loan repayments. This can be done internally or, if you are unsure of how to do it, by using payroll software solutions.
In using software, your business is better placed to be paying the right amount of tax and NI contributions. It can calculate the percentage of a pre-tax salary that needs to be paid and then direct what is owed to the HMRC each month.
Businesses should know that there is a tax month that runs from the 6th to the 5th. In that period, the HMRC should be told if an employee hasn’t been paid and a full report of payments should be sent in the form of a Full Payment Submission (FPS) form. That can be done online.
Proof of Payment
From the employee’s perspective, they will need proof of payment. They should be sent a payslip for each month. It should detail their pay after tax and NI has been taken off, as well as any other deductions or additions such as overtime.
Sending payslips is a good way to help manage your payroll. By saving a copy for your business’s records, it makes the whole accounting process easier. It also aids with those reports you need to send for each tax month and tax year.
Errors made in payroll can be costly – the average FTSE 100 company loses up to £30 million a year via these mistakes. Cutting them out can save a lot of work, both for your business and its’ internal admin or finance team.