Start up a Payroll For Your Staff

You have opened for business, registered with HM Revenue and Customs (HMRC) as an Employer and have a couple of members of staff already working for you. Things are going smoothly so far and it is coming up to the first time you will be paying your employees.

Now, then, is the time to set up your payroll system.

The Law

As an Employer, you are required by law to keep accurate records of all the money going in and out of your books relating to the people you employ. You will need to provide evidence of:

• When you pay them
• How much you pay them
• How regularly you pay them
• Whether they are also paid by someone else (if they have another job)
• Payslips you have provided
• Whether you have made any deductions and what for etc.
• Any expenses you pay on behalf of your employees e.g. for company car etc.)

What is PAYE and Payroll?

PAYE stands for Pay As You Earn and is a method whereby National Insurance contributions and tax are collected at source (from wages before they are given to an employee) on behalf of the government.

Earnings above the PAYE threshold (currently £105 per week or £453 per month) become taxable and it is your responsibility as the employer to calculate the tax and N.I. contributions and deduct it from your employee’s pay before you give it to them. You will need to pay this amount back to the government each month unless under £1500 per month, in which case you may be entitled to pay quarterly.

Payroll is your financial record of all earnings pertaining to your employees in a fiscal year. It also refers to the system by which you keep these records.

Setting Up a Payroll System

To set up a payroll, you can either employ someone trained to do this for you (e.g. a book-keeper or PAYE company of which there are many) or do it yourself.

There are many training courses that you can go on to learn how to do it properly, or the HMRC provide a helpline you can call if you need advice. You can also find out a lot of good general information from the Internet such as the HMRC and Business Link websites which will help get you started.

If you decide to go it alone, there are computer programs you can buy which will take you through the process of setting up a payroll which provide a spreadsheet incorporating the formulas for calculations already worked out, so that all you need to do is complete the relevant columns.

Some software has been accredited by the HMRC and is capable of sending your figures directly online to them. (Watch out for the HMRC Payroll Standard logo on the software boxes). This is probably the best and simplest choice if it is the first time you have run a payroll system as it is directly linked to the HMRC and already has their approval.

If you prefer good old fashioned paper and pen, then you will need to buy a Ledger to keep a manual wages record which will be called a P11 Deductions Working Sheet as well as tax and NI tables to work out the figures.

Tips and Advice

First and foremost - set up a good system. Take your time and get this right at the start. It will keep you clear-headed as to exactly how much your business is earning after paying your staff and will help you hugely when it comes to submitting your tax at the end of the financial year.

Allocate regular time to the task of book-keeping and don’t put it off! None of us like doing the figures – after all, it’s not what we set up the business for in the first place! But it is essential you don’t let them run out of control until it becomes a mountainous task. Unfortunately it will not go away. If you really can’t face it, then get someone else to do it.

Keep your records straight. Keeping financial records involves lots of bits of paper. The earlier you organise a good filing system and place to put things like receipts and invoices, the better. Try to maintain some kind of date order and always separate anything personal from anything to do with the business to save confusion further down the line.

If you follow this advice, then you will be able to operate a better business and know exactly how much help you can afford to make it even better!

More information on PAYE and setting up Payroll systems, please go to: www.hmrc.gov.uk