Keepers Accountancy's Blog

How do I pay an employee? A payroll guide for SME's - part 1

Posted by Ludovica Zallot on Sep 1, 2016 5:00:00 PM

payroll guide for sme's
If you are a one-person firm, like the majority of Britain's private sector businesses, chance is you never had to worry about payroll - but if you have decided to take on staff, here is a quick guide on how to pay them

Payroll is a term commonly used to describe the set of rules, requirements and practices related to paying an employee - from issuing payslips, keeping records and deducting the right amount of tax from a salary.
 
Managing the payroll side of your business can be more or less complex depending on various factors, such as number of employees and whether they are paid on a weekly or monthly basis. It can be further complicated by a high staff turnover, which would require frequent changes and might increase the chance of mistakes being made. 

Some people prefer to outsource this side of their business -
so they will not have to worry about the tax calculations and paperwork that comes with handling their own payroll. If you decide to follow the outsourcing route, an accountant, bookkeeper or payroll company would be your first port of call. Keepers offers a payroll service at a competitive rate, so do not hesitate to contact us should you wish to leave to someone else the management of your payroll - it will allow you to focus more of your energy on growing and improving your business rather than on administrative tasks.
 
When outsourcing payroll, it is important to keep the chosen third party informed of any changes - if they are not made aware that an employee has left, they might still pay them. Therefore good communication is essential in order to prevent errors being made.
 
If you decide you can manage your own payroll in house, you should first establish who will be responsible for running it. This task can be assigned to an individual within the company, but in smaller firms it is often the job of the director. If that is yourself, then it is time to familiarise yourself with the rules and requirements of PAYE.
 
PAYE, or Pay As You Earn, defines the system by which employers are obliged to deduct income tax, and national insurance if applicable, from the employee's wages before they are paid. The payments of tax and national insurance are then sent to HMRC on a monthly basis, although this can be done quarterly if you pay less than £1,500 per month to your employees. Student loans and payments into a pension fund must also be deducted, and we will talk more about the latter in the second part of this article.

laptop image by Reategui12

PAYE is normally managed electronically: this can be done with a payroll package installed on your PC or with an online system. The best systems integrate with your accounting package to keep the task of manually entering the figures to a minimum. When choosing a payroll package it is important to pick one that provides good support - to avoid the situation of your employees not being paid due to a technical problem you cannot solve on your own. Other important things to consider are keeping the software updated with any changes and ensuring your system is secure and regularly backed up.

The employee's pay must be entered in the payroll package.The same must be done with any holiday pay, maternity pay, bonuses, commission etc, but certain extras are classed as employee benefits. You can read more about these here

The system will then produce a payslip containing the "gross" wages, any deductions, and the "net" wages. These must be given to the employees in either paper or electronic form. A Full Payment Submission (FPS) will then be sent to HMRC to notify it of the payments and deductions, usually on the employee's pay day, although there are some cases in which late-reporting is accepted

In the first part ofour payroll guide for SME's we have introduced PAYE and a basic overview of the tasks it involves - the second part, in the August newsletter, will contain more information on specific areas of payroll and on the sometimes tricky subject of Auto Enrolment. Don't miss the next article!

If you have any questions about this issue, do not hesitate to seek professional help, or if you are with Keepers, talk to us now. On top of offering some of the best accountancy services in Sussex, we also give free business advice and free tips for small businesses. Book your Free Telephone Conversation with us now. Keepers, the proactive Sussex accountant.

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Topics: business tips, What is PAYE, Payroll, start up advice