How to set up company payroll yourself
There are plenty of accountants and dedicated payroll service companies who can take care of the payroll requirements of your small business. However, as with most things in business life, hiring professional help costs money. If you want to avoid incurring additional business expenses, it’s worth considering setting up your own payroll.
We’ve put together a checklist of things that should be taken into consideration when managing your company’s payroll.
Her Majesty’s Revenue and Customs is the government department that deals with taxation matters. Before you can legally start paying your employees, you must first register with HMRC as an employer. You’ll then be provided with login details for the PAYE Online service.
It’s up to you whether you choose to use the HMRC payroll software, or use another off-the-shelf solution. Whichever platform you choose, you have a legal obligation to record certain information about all employees.
You will have to calculate the pay for each member of staff, make any necessary deductions and report your findings to HMRC at regular intervals. Finally, remember you must pay HMRC any owed tax and National Insurance deductions.
Understand what documentation is required
The specific information you’ll need to record for each employee depends upon several factors. But in most cases you’ll need:
- The name, contact details and NI number of each employee
- Salary details for everyone on the payroll
- Bank account details for all employees paid by direct bank payment
- Up-to-date tax codes for every employee
- Details of any benefits, bonuses, healthcare and pension funding
- Holidays and sick days
- Maternity or paternity leave
There is a legal requirement to keep records of every employee for a minimum of three years, dating from the end of the tax year to which the documents relate. Failure to comply with this requirement can lead to a fine of up to £3,000, in addition to paying estimated costs determined by HMRC.
Decide on your payroll software
There’s plenty of choices when it comes to payroll management software, so take your time assessing the pros and cons of each one. Choose a package that you feel comfortable using and one which provides all the features that you require for managing your company expenses. Remember, the goal is to grow your business, so you’ll need to look for software that will give you all the functionality that is adaptable to future needs.
If you have a bookkeeper or accountant, it’s worth taking the time to ask them which software packages they can recommend. You’ll probably need to share your data with an accounting professional at some point, so it makes sense to choose something with which they are familiar. And of course, it means there’s always someone to turn to if you need a little extra help!
Set up direct salary payments
Employees expect to receive their salary payments on time. Paying staff late can lead to unhappy employees and may cause them unnecessary worry. Setting up a business bank account to schedule automatic payments means that you’ll never have to worry about your staff receiving their money on time. Many of the best payroll software packages include this option.
Don’t miss any payments
HMRC will expect you to provide regular reports. The frequency varies according to the type of business you run, but you can expect to make yearly reports at the absolute minimum. Most accounting software packages give you the option of setting reminders, so make full use of this feature to make sure that you never miss any deadlines.
Know your legal requirements
In addition to being responsible for paying your employees’ National Insurance and tax, you will also need to keep up to date with current legislation regarding employment law. You will need to understand the law concerning the minimum wage, for example. If your employees ever have to work additional hours, you’ll need to be up to speed on the laws governing overtime work too. A failure to comply with your legal requirements as an employer could lead to a substantial fine and result in negative publicity.