Just hired your first employees? It’s time to set up your payroll. UK payroll specialists Finesse Resources have put together a helpful guide for small businesses looking to pay staff for the first time.
Setting up payroll for the first time is a significant milestone for any small business, and there are two ways of doing it. These are:
- Outsourcing to a professional payroll provider
- Managing payroll in-house with a payroll software
This guide outlines the benefits of both to help you weigh up which is right for your business. It also contains some helpful advice to make sure you get it right, whichever option you choose.
The Benefits of Outsourcing Payroll for Small Businesses
There are a number of reasons why it can be a good idea to outsource payroll, especially for a small business. Firstly, it saves time. The responsibility of running payroll usually falls on the owner of the business. By outsourcing, they can free up valuable working hours to focus on other business-critical tasks. It can also save money. By paying an external company to run payroll, businesses eliminate the need for costly payroll software and dedicated personnel.
Outsourcing also ensures compliance with HMRC’s ever-changing regulations and tax laws. Payroll providers stay up-to-date with the latest requirements, reducing the risk of errors or penalties and making sure salaries, taxes, benefits and deductions are calculated accurately.
Other potential benefits to paying a trusted payroll provider include enhanced data security, access to advanced technology, scalability, and improved accuracy. That’s because Payroll data is handled securely by reputable providers who use advanced systems and efficient processes that are flexible as a business grows or changes. Reliable and efficient payroll processing also helps to keep employees happy by ensuring they get paid accurately and on time and have access to convenient apps or portals for instant access to their history of payslips and P60s.
How to Choose the Right Payroll Provider
Look for a provider with plenty of experience and a good reputation. Read reviews and case studies and check they are CIPP-accredited as this will make sure that they have up-to-date payroll expertise.
If you’re happy with their credentials, the next step is to check the services they offer to make sure they meet your payroll needs. Common things to look for are payroll processing, RTI filing, year-end reporting and digital payslips. Some payroll providers will offer more services than others, but a reputable provider like Finesse Resources will build a bespoke package of payroll services to suit your needs.
Reach out to your chosen company and arrange an initial consultation. If you are happy with the price and package they offer and are impressed by their communication so far, then you’ve found your payroll partner.
The Benefits of Managing Payroll Yourself
Running payroll in-house can have a number of benefits for the right business. It provides them with total control of the company’s finances, allowing the business to customise their payroll easily and be more flexible with financial decisions. That being said, doing this requires the business owner or employee in charge of payroll to have a strong understanding of business finance.
Running payroll in-house also means a business can have immediate access to payroll data and reports. This can help with making quick decisions on budgeting, forecasting and financial planning.
Additional potential benefits of in-house payroll include the possibility of direct communication between employees and payroll, better integration with other internal systems such as HR software and the ability to save money on outsourcing costs.
How to Set up Payroll Yourself
HMRC have a step-by-step process that any business must follow to set up a payroll system. This includes businesses that have a sole director of a limited company who is the only employee. The steps are:
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Register as an employer
Registering as an employer with HMRC will provide you with a login for PAYE Online, the government’s payroll portal. This is where you can check what you owe to HMRC, pay bills, see your payment history and access tax codes and notices about your employees.
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Choose payroll software
The next step is to choose a payroll software that is approved by HMRC. There are free versions which provide the basic and required function of reporting PAYE information online. There are also many paid for versions that have extra features such as producing digital payslips, instant automatic reporting and batch inputs to save time.
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Tell HMRC about your employees
The next step is to make HMRC aware of the employees that work for you. You’ll need the information on their P45 (see HMRC’s Starter Checklist if they don’t have one). All of this can be submitted to your payroll software before being officially registered using a Full Payment Submission (FPS).
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Collect and keep records
Your payroll software will automatically keep records of what you pay your employees and any deductaions you make. However, you must also keep a record of absences, tax code changes and taxable benefits and expenses such as a company car.
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Pay employees and report to HMRC on or before the first payday
Using your payroll software, you must record your employee’s pay and calculate their deductions including tax, National Insurance and Student Loans. You must also calculate how much National Insurance you will need to pay on their behalf. This information is then used to create a payslip for your employee and submitted to HMRC in a Full Payment Submission (FPS).
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Calculate additional payments
As well as their salary, you may also have to factor in Statutory Sick Pay, student loan repayments, pension contributions and other payments like commission, holiday pay and one-off bonuses. These should all be recorded within your payroll software.
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Pay HMRC the tax and National Insurance you owe
Once you have reported a Full Payment Submission (FPS), it’s time to pay the amount you owe to HMRC. This process is made much easier by your payroll software, which will calculate the total amount you owe, including your contributions to an employee’s National Insurance.
By following these steps, setting up payroll can be a smooth and efficient process. However, if you don’t have the time or are worried about getting it wrong, get in touch with a payroll provider like Finesse Resources. We will support your payroll needs, ensuring your employees get paid on time, every time.