Managing Company’s Payroll
When you start hiring people into your business, mastery of payroll becomes an integral part of your business. If you do something wrong, you risk disgruntled employees and potential fines from HMRC. There is a lot to pay for the employees. That’s why we’ve compiled this guide to help you get it right and meet HMRC’s expectations.
So What Is The Payroll After All?
Payroll is tied to a number of different jobs but generally refers to the process of calculating an employee’s salary. The process includes:
- Calculation of net and gross salaries SSP and social insurance
- Payment account
- Make reasonable deductions from the payment, including income tax and social security
- Employee salaries and payroll provision
- Send information to HMRC
What is PAYE
PAYE or “Pay as You Earn” is HMRC’s system for collecting income and social security taxes from employees. Typically, when you hire employees, you should run PAYE as part of your payroll. No need to apply for PAYE if none of your employees earns £ 120 or more per week (2020/21).
The First Step in Payroll Management
The first thing you need to do as an employer is to register with HMRC as an employer (if you are not already registered). This allows you to register to use HMRC’s online services and receive a PAYE connection online. Alternatively, you can get our services for this.
Online services allow you to submit payroll reports to HMRC, access your employees’ tax codes, pay fines, sign up for email reminders, and receive notifications when you report or pay in delay. Next, you need to select the payroll software which will collect employee data and calculate salaries and deductions so that you can easily send them to HMRC.
What Does HMRC Require From Companies?
When performing payroll for your employees, you must do the following on or before the day the employee is paid:
- Calculate deductions like income tax and social security
- Create payslips for employees
- Calculate your employer’s social security contribution if your employee earns more than £ 157 per week.
- Report all payments and deductions to HMRC when submitting full payment (FPS)
- Send payslips
Businesses are required to disclose information about everyone they have on their payroll, whether or not they are subject to income tax. You can do this by entering your PAYE Online login information into any payroll software you use.
Mismanagement in payroll or simple ignorance can cause you to be fined (from £ 100 per to £ 400 per month) unless you have a compelling reason for the delay.
Pay What You Owe
Employers must also pay part of social security for a class 1 worker through their PAYE invoice. The amount you pay depends on the employee’s income. Once you know what is expected of you as an employer, the next step is to pay your employees. It is important that this be done accurately and in a timely manner.
The salary you provide to your employees must comply with applicable minimum wage laws. The national living wage (2020/21) is currently £8.72 per hour for those aged 25 and over.
Gross Salary Calculation
To calculate the gross salary, the payroll department needs to know the fixed amount, the frequency of payment (weekly or monthly), the hourly rate and the amount for each service to pay commissions. To calculate the hourly wage, you need a system for recording hours worked, for example. b- Timetable or clock card. If payment is made on a commission basis, there should be a system for notifying the payroll of such amounts. To calculate net pay, you must make deductions from gross pay that show what the employee actually gets paid.
Under Section 8 of the Employment Rights Act 1999, each employee is entitled to one pay slip for each payday. Companies can include additional information about their payroll, but all must include at least the following:
- Net salary
- Amount of deductions (taxes, N.I., pensions, student loan payments)
- Net salary
- Payment method
- Employee salary picture
How to Pay Wages
The most common way to pay employees is by bank transfer using BACS. About 90% of salaries are paid using this method. Other payment methods are Express Payment Service and CHAPS. Whichever method you choose should be agreed upon between you and your employees.
Benefits In Kind
Benefits in kind (BIK) refer to things provided by the employer that are not cash, for example, company cars. Most benefits in kind are taxable and may also be subject to Social Security. However, the tax deduction method is different from the regular income tax. In lieu of PAYE, Form P11D must be completed and submitted annually, listing relevant services. This generally results in a change in the employee’s TIN for the following year.
Auto Enrollment Pension
Automatic pension insurance regulations mean that you must enroll your employees in a company pension plan that you and your employees contribute to. While people can choose not to participate, most employees choose to move forward. A good payroll system makes self-registration easy because it has all the information you need to set it up, including the employee’s name, address, date of birth, and salary details.
However, if this system seems too complicated for you, our offered payroll services are a gift for you!