Payroll Dos & Don’ts – To make your finances a breeze
Do you employ an employee or a worker even for short time or casually? Or are you just a single company director? Or you have just started your new company and you wish to expend by taking on an employee, but you don’t know anything about the payroll or how much to pay to an employee?
If so, then this article is for you.
When you’re just starting out, it can be tempting to think that your company doesn’t need to run payroll. You might think you don’t know anything about payroll, or you might be worried about the hassle of registering with HMRC for Pay As You Earn (PAYE) scheme and reporting the small amount you pay to employee for short period.
But avoiding payroll process or providing HMRC with inaccurate information can be costly for the company. Here are some reasons why running payroll is important:
- It helps you keep track of your finances—especially if your business is doing well and growing fast!
- Running payroll will help you avoid any penalties from HMRC if they find out that you haven’t been paying taxes on time (and trust us, they will find out).
- It’s simple: If you want to hire someone full-time or part-time, then you need to make sure that they’re being paid correctly according to their hours worked every week!
To avoid unnecessary cost in the form of underpaid/overpaid tax, late submission penalties or employment tribunal costs, here are some very important Do’s & Don’ts for you to keep your payroll running smoothly and to keep your employee(s) happy as well as keep HMRC investigation at bay.
Do plan the type of employees you need to take on and if you can afford to pay them
HMRC provides simple step by step guidance on how to get your business ready to employ staff.
- Knowing your business and how busy your company is, you can decide to take on an employee full-time or on a part-time basis.
- Emply them on a temporary or permanent contract as your business grows.
- Pay your employees fairly for hours they have worked for you. You must keep up with HMRC legislation for National Minimum Wage (NMW/NMLW) every year.
- You need to decide how often you will pay your employees:
- Weekly – means that an employee will be paid 52 or 53 times a year.
- Fortnightly – means that an employee will be paid 26 times a year.
- 4-weekly – there are 13 salary payments in the year between 6th April till 5th April of next year.
- Monthly – there are 12 equal payments to an employee.
- Annually – used for directors who have straight forward salay payments.
Even if you are a single director company, processing a payroll for a director has benefits. Reporting earnings above the Lower Earning Level (LEL) threshold of National Insurance Contribution (NIC) counts towards state pension credit. You usually need a total of 30 qualifying years of National Insurance contributions or credits to get the full basic State Pension.
If you don’t put an employee on payroll, they lose out on:
- Benefits – if they are with the Universal Credit, they will not be entitled to benefit support – too much and they will receive less, too less and they will be overpaid or none because HMRC has no information about an employee’s record.
- State pension – undeclared number of years in their employment could have an impact on their state pension income.
Don’t keep changing the pay frequency – an employee does expect to be paid on same day as agreed as it could have an impact on his/her financial situation as well as the benefits they are entitled to.
The NMW/NMLW is given by law and protects an employee from being underpaid.
Therefore the NMW is revised each time their age changes. Every tax year in the new budget, tax changes and NMW rates are revised. Do subscribe to our Croucher’s News to stay up to date with any changes.
Do register as an employer and setup PAYE scheme with HMRC
You must Register as an empoyer before you make the first payment to an employee.
Who can register?
- Limited company
- Sole trader
- Limited Liability Partnership (LLP)
- Individual employing a carer or support worker in your home
- Contractor if you are using subcontractors for your construction work under the Construction Industrial Scheme (CIS)
- Or even if you are paying a pension
- Or providing expense or beneifts to your employees.
What will you be provided with?
HMRC will provide you with a PAYE reference number and Accounts Office Refence number which is used for RTI submissions each time you provide HMRC with payroll information. It is unique number associated only to your company.
Do find the right payroll software for you
You could calculate your payroll manually but it is so much easier with the right payroll software. You need to find payroll software which has been approved and accepted by HMRC for all your frequent payroll processing, records keeping and submissions.
If you are thinking that the software could be expensive, think again!
If you are a small company up to 10 employees, HMRC offers a free version of software called HMRC Basic PAYE Tools. But if you already have Cloud Based Software, because you need to meet the MTD (Making Tax Digital) requirement, there may be a payroll package available which can easily integrate with your daily bookkeeping or accounts process. Many payroll software applications already have integrated payslip apps which can help you to cut the cost associated with printing and distribution.
If running your own payroll is not for you or you still feel that it is big responsibility to run payroll in your company, you can outsource your payroll. We are here to help. Our payroll system is flexible to any industry, including the Construction industry Scheme. At Crouchers we tailor payroll base on our clients’ needs and can provide e-payslips to your employees at no extra cost.
Do consider workplace pension
Workplace pension was introduced in 2012. Regardless what type or size of business you run, that makes you an employer and you therefore have ‘duties’ under the pension law.
Under the Pension Act 2008, you need to comply with Automatic Enrolment when you employ someone.
The Pension Regulator provides guidance to An Employer who has to provide a pension to an employee and list of pension schemes for small employers.
Don’t try to avoid workplace pension duties because it can cost your company up to tens of thousands of pounds on penalties and you still will need to pay any contribution due on employees earnings which will have to be backdated.
If you don’t pay the contribution in full, deducted from an employee, to a pension provider, it also will have a financial impact on the company and your company’s reputation.
Do keep an employee’s records up to date
It is very important to have and to keep employee’s details correct and up to date:
- Employee’s name – change of name.
- Date of birth – if not correct, it can have consequences on pension assessment or state pension age, or NMW rates.
- Address – change of address means that HMRC can’t provide an employee with change of tax code or tax refund should they be invited.
- Tax code – if your software is linked to HMRC gateway, you will be instantly notified. But if the tax code has been sent to an employee and not provided to employer, it can have an impact on income tax computation.
- National Insurance Numbr – it is very important to have the correct NI number.
It acts as a binding link between employee and employee’s earnings, income tax deductions, NI contributions and much more. Having NINO incorrect can have an impact on their benefits entitlement.
If you don’t keep employee’s records up to date, it can have impact on information held with HMRC which can cause issues with employee queries. Having incorrect information can have an effect on the payroll process, like the tax code.
Remember, it’s your responsibility to maintain employee records accurately for the duration of their employment. Even it may seem like a juggling act at times, keeping accurate personal records is something you need to stay on top of.
Do stay up to date with payroll legislation
Do you keep up with changes in legislation? Especially lately with changes in government and their announcements where they have made tax changes three times within one tax year. Here in Crouchers we are on top of it! Our staff are trained, informed and have access to various resources to get the payroll done accurately.
Payroll and legislative changes can be complicated and can affect payroll processing, paying staff correctly and paying HMRC the correct amount you have deducted / recovered from staff.
If you don’t get it right the wrong calculation can have impact on employee’s earnings that they take home. A wrong calculation can lead to an employment tribunal if the employee finds out that you have not paid them the correct amount, just because you failed to follow the current legislation. And that can cost your company a fortune!
Do submit payroll information on time
At this stage, you will have decided who to employ, how much to pay and which payroll software to use. You may have got your head around the legislation and workplace pension and possibly figured out how the payroll software works! How have you found it? Easy, or just more grey hairs to deal with?
And finally you will have entered figures for gross pay and the payroll software will have calculated the deductions for tax, NIC, maybe pension or student loan. You have the net amount which you need to pay to your employee now. That’s it. All done!
No, I am afraid that’s not quite it! Any information entered and generated during the payroll process, including any changes, you will need to let HMRC know about. You need to send a Full Payment Submissions (FPS) by the pay date (the day when you pay your staff). FPS submission is to tell HMRC about payments to employees and what deductions to their pay you have made.
You also need to send an Employer Payment Summary (EPS) by the 19th of the following tax month if:
- You reclaim statutory maternity, paternity, adoption, parental bereavement or shared parental payments.
- Advance payment from HMRC.
- Claim employment allowance (currently, eligible companies can claim up to £5,000 of the employment allowance which is offset against employer NIC).
- Can reclaim CIS suffered (if company is registered with CIS scheme as a sub-contractor).
- Or to report no payroll activities for the month or future month(s).
Don’t think that if you don’t have employees and don’t pay anyone wages or salary that you don’t need to do submissions. Wrong. Unless you have closed your PAYE scheme, you still need to carry out NIL EPS until you employ new staff members and start paying salaries again.
Don’t panic if you make an error. You can still submit corrections after your submission but it is important to do this as soon as possible.
Finally, HMRC does expect to be paid by 22 nd of each month. And you must pay exactly what you owe. If you pay less they will charge you late payment interest which accrues on a daily basis until it is paid in full, including the charges.
We’re here to help
If your resources are limited, you are unable to keep up with the changes, processing payroll is complicated or you just need advice, please contact us. We keep up with legislation and the submission deadlines on your behalf, no matter the size of your company or number of employees you employ, we can help you.