Payroll is a crucial part of your operations. The government requires you to collect tax and National Insurance (NI) under the PAYE system and imposes penalties for failure.
The many complications include processing statutory sick pay, statutory maternity pay, and occupational pension contributions, however, few employees will tolerate being paid late or incorrectly.
The Rules
You must operate a payroll once you have employees. At its simplest, payroll calculates and produces payslips.
- Register with your PAYE tax office.
- They will issue you with a PAYE reference and a 'New Employer's Starter Packâ.
- You must keep basic payroll information for each employee.
- Each employee must supply you with a National Insurance number. This will be shown on the employee's NI card or P45.
- You need to know the rate of pay for the pay period the frequency of pay and the date the employee started working for you.
- The employee's P45 will indicate the employee's tax code and details of pay-to-date and tax-to-date from previous employment.
- Employees without a P45 must fill out form P46.
- Most employees come under National Insurance category A.
- Keep a list of all wage payments on form P11 or equivalent. A payroll software program will automatically prepare the equivalent. A P11 is a working sheet to calculate:
- The tax due from each employee. This is based on gross pay including basic pay, bonuses, commission, overtime, maternity pay, sick pay, and any other taxable pay the employee is entitled to.
- The amount of National Insurance to be paid by the employee and the employer.
- There may be additional deductions from your employees' pay including
- Contributions to occupational pension
- Holiday pay schemes
- Union subscriptions
- Loan repayments
- Student loan repayments
- Attachment of earnings orders
- Corrections to previous payslips
You are generally prohibited from making deductions from an employeeâs wages unless you have obtained prior written consent from the employee.
- Issue a P45 to leavers
- This states gross pay and taxes paid to-date.
Operating a payroll
Small businesses may choose to operate payroll manually.
- You have to manually calculate PAYE tax, National Insurance contributions, statutory sick pay and statutory maternity pay. Manual calculations are slow and confusing.
Most businesses choose to the Payroll function.
You can choose between two options. For many businesses the decision depends on the amount of detailed control they wish to have and on whether or not they have the resources to implement an 'in-house' system.
- You can use computer software to establish your own 'in-house' system.
- You can use the 'fully-managed' service offered by an accountancy firm or a payroll bureau.
Computer software provides greater control and the opportunity to capture valuable management information.
- The initial cost of implementing a computerized payroll can be slightly higher, the final cost depends on the number of employees and the level of integration you demand.
A bureau can offer a continuous service to even the smallest of firms.
- You provide the pay data and the bureau produces the payslips, keeps the records and produces the monthly and annual returns.
- Most bureau charge per payslip. There is an initial fee to set up the payroll and additional fees for any changes you may wish to make.
Harney & Co. can provide either a bureau payroll service or advise on installing a payroll system
We can help you set up a payroll system appropriate to the size and needs of your business.
We can advise you on specific matters, such as managing statutory sick pay, or directors National Insurance.
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