Payroll

Payroll

If you employ people, then you must set up a PAYE (Pay as You Earn) payroll system. This is to ensure that the correct amount of tax and National Insurance (and any other deductions) is deducted from an employee and paid to the HMRC.

You are also required to give every employee a payslip for every pay period, detailing all payments and deduction made.

All employers in the UK are required to operate a PAYE scheme for their employees. For the purposes of a PAYE scheme, it will include full and part-time employees and any workers or casual workers (and possibly directors, unless they receive dividends only).

Payrolls are run on a regular basis. The most common is monthly. However, some employers will be paid weekly or 4 weekly.

Note: the more often you run your payroll, the more time it will take and hence the more costly it will be (especially if you outsourced your payroll), so a monthly payroll can be preferable.

Note: if you currently run a weekly payroll and want to move to monthly, you can do this by consulting with employees (see Contracts of Employment section). You may also want to support staff financially (e.g. give them an advance) for the first couple of months to help them adjust.

For payroll purposes the tax year runs from 6 April to 5 April in the following year. A tax year contains 52 weeks.

Setting up a Payroll

Every employer must run a payroll, which identifies each employee, the gross amount paid, and the deductions withheld and paid over to HMRC.

When setting up a payroll system, the HMRC needs to be contacted and the payroll will be given a unique PAYE reference number. HMRC will also supply details to allow the employer to use the PAYE online service. This service allows employers to fulfil their obligation to report PAYE information online, and it also enables HMRC to send various information and send reminders to employers.

There is also substantial guidance for employers on the gov.uk website: www.gov.uk/topic/business-tax/paye.

Real Time Information

Employers are required to send information to the HMRC under the Real Time Information (“RTI”) system. This provides details of each employee's pay and deductions for tax and NIC, along with details of any statutory payments and student loan deductions. This information must be submitted to HMRC each time a payment is made (whether weekly, monthly, or at irregular intervals) and must be supplied on or before the date on which the payment is made.

Practical Considerations:

Note: because of the obligations and complexities around payroll, many organisations outsource their payroll to a payroll provider.  

If you do run payroll in-house, you will need payroll software that will make calculations e.g. tax and NI due, SSP, and payments relating to family friendly e.g. maternity.  Because figures change every year, it is important to make sure you run your payroll with up-to-date software.