Having a clear understanding of the steps involved with payroll will ensure you are compliant. Whether you’re trying to establish a better payroll for your business or you’re new to payroll or HR.

How an employee is paid should be detailed in their contract of employment, setting out their pay details, when and how they will be paid, overtime or TOIL arrangements, on call payments, sickness pay and holiday entitlement plus any contractual benefits. Any allowable deductions from pay should be in the contract too.

1. Collect employee information: Collect employee information on a new starter form or through an online tool such as The HR Dept Toolkit. New employees should provide a P45 from their previous employment.
2. Gather timesheet data: Where timesheets are used, ensure the cut off date gives you time to process the claims.
3. Calculate net pay.
4. Process payroll and distribute payslips: Process salaries on the pay day. All employees are entitled to a written payslip detailing all pay and deductions.
5. Maintain payroll records: These must be kept for a minimum of three years.

By law, all employers must enrol employees into a pension scheme. The employer, employee and the government will all pay into this scheme. If employees are eligible for automatic enrolment, employers must automatically enrol employees into a pension scheme and make contributions to that pension. If employers don’t have to enrol by law by not earning the compulsory threshold amount, employees can still join the pension scheme — employers cannot refuse.

It’s a common misconception that employers must match the employee contribution. Currently employees must contribute 5% and employers 3%.

People get confused between payroll and PAYE. They have some very distinct differences and should never be used interchangeably.

All people who work for the business as a worker or employee are entered onto the payroll system. This record is provided to HMRC. Only the truly self-employed are not on the system and invoice the company for the work they do.

PAYE stands for Pay As You Earn. This refers to the income tax that is deducted from an employee’s salary before they receive it. PAYE also involves HMRC and the pension provider, who deduct the tax using ‘PAYE Codes’.

In the UK, the typical payroll cycle is monthly. This means an employee will receive a payslip every month — often on the last day of the month — and a total of 12 payslips a year.

While monthly is the most popular in the UK, there are three other payroll cycles: weekly, bi-weekly and semi-monthly. To make it clear, these result in a payslip once a week, once every two weeks, and twice a month respectively. Not every business is the same, so it’s wise to research the pros and cons of each one before making a decision.

Simply put, a payroll management system calculates how much money you owe your employees and how much you owe HMRC and the pension company. As well as wages, it helps you comply with tax and legal requirements. It also helps with reporting, which can take employers a lot of time to do manually. If your business has one or more employees, you should have a payroll system in place to ensure efficient and effective payroll.

Preparing payroll is not an easy task, and many things can go wrong if you’re not qualified or completely comfortable with how it works. If you run a small business (or if you’re tax savvy), it is possible to prepare payroll, so long as you follow the correct steps.

Outsourcing your payroll can save time and money, if you’d like more information contact us today.