You’ve hired your first member of staff, congratulations!
Although it is exciting hiring your first employee, it also brings challenges for your business.
Significantly, your payroll system will be affected.
Setting up payroll correctly in any business is a key priority and should be understood.
To avoid errors, you need to set up an efficient payroll system either by yourself (using HMRC-recognised cloud payroll software) or by outsourcing to our expert team of accountants.
Why do I need to set up payroll?
Setting up payroll for your business is vital in ensuring your employees are paid correctly.
Payrolling in-house can help you to keep your costs down and make your business flexible as it grows.
But choosing to outsource and get the advice of professionals will reduce the administrative burden on you and ensure your processes are compliant. Get in touch with a member of our team today for more.
How do I set up a payroll for my business?
If you do decide to set up payroll yourself, you will need the relevant payroll software to report to HMRC.
You will now be able to:
- Record your employees’ details
- Work out their pay and deductions
- Report payroll information to HMRC
- Work out how much you need to pay HMRC.
This will help you to efficiently payroll and ensure your employee is correctly paid whilst you comply to your obligations as an employer.
Here are the steps you need to follow if you are setting up payroll in-house.
Register as an employer with HMRC
- It takes up to five days to get your employer PAYE reference number
- If you employ someone on or after 6 April, you’ll get your employer PAYE reference number by 17 May.
Tell HMRC about your employee
- You must tell HMRC when you take on a new member of staff
- You’ll also need to check whether the employee needs to be paid through PAYE, get employee information to work out their tax code, and find out if their student loan is outstanding
- You can use these details to set up your employee in your payroll software and register them with HMRC using a Full Payment Submission (FPS).
Collect and keep records
- You must keep records of what you pay your employee and any deductions you make
- Note employee leave and sickness absences, tax code notices, and taxable expenses or benefits
- You must keep these records for three years from the end of the tax year they relate to, either on paper, digitally or through a software program
- Failure to keep full records might result in a penalty of up to £3,000 from HMRC.
Record pay, make deductions, and report to HMRC
- You’ll need to complete tasks during each tax month
- Using your software, you will need to record your employee’s pay, calculate deductions from their tax, calculate their NI contribution (that you pay on their earnings), produce payslips, and report their pay and deductions in an FPS.
Pay HMRC the tax and National Insurance you owe
- Every month, you must pay HMRC the tax and National Insurance you owe
- Your payroll software will determine how much you owe, including an employer’s NI contribution on your employee’s earnings.
Complete annual reports and tasks to prepare for the next tax year
- You need to report to HMRC on the previous tax year, give your employee a P60, and prepare for the new tax year which starts 6 April
- In the report, you must include your employees’ pay, any payroll benefits, and deductions in an FPS.
For your payroll to run efficiently, you should know its ins and outs and any legislation laid out by HMRC.
If you fail to do this, you run the risk of being fined – and experiencing unhappy employees.
If you have hired your first member of staff and need advice on how to set up your payroll, contact us today.
