New year, new hires? Setting up payroll for new employees
The start of a new year often means hiring new employees and therefore adding them to your payroll. It’s a great thing, usually meaning growth.
Whether you are hiring your first employee or your thousandth, it is essential to set up payroll and PAYE for your new employees the minute they start their new roles. Otherwise, your business will be dealing with unhappy and unpaid employees, and possibly even HMRC penalties.
Avoiding any disgruntled new employees and avoiding paying HMRC fines should be easy. In fact, for any SME taking in new employees, the solution is simple: an efficient and legally compliant payroll system.
So, how do you go about setting up new employee payroll?
Payroll management is simply the administration of employees' financial records, which includes salaries, wages, bonuses, deductions, and overall net pays. It involves collecting employees' payroll data, the computation of the data, disbursement, and reporting. As it's common knowledge that the workforce is the heartbeat of every organisation, payroll management remains an integral process that sustains and furthers operations.
The fundamental importance payroll management offers is that it allows employees to get timely and accurate payment for the services provided within a working cycle. Quality payroll management enhances administrative processes, creates operational synergy, and keeps employers on track with employee salaries. Once it's correctly done, you, as an employer, can focus on essential aspects of business operations.
While it may be tempting to commit these processes to in-house employees like the HR department, it may be better to use outsourced payroll providers. They will handle the entire process efficiently without distraction while eliminating margin for errors that may delay employee payment or cause breach compliance regulations. However, before instructing outsourced payroll services, it's crucial for employers to first familiarise themselves with their own responsibilities.
1. Register as an employer with HMRC
If you are hiring your first employee, the first action to take is to register as an employer with HMRC. Registering with HMRC before the new employees’ first payday is crucial because it takes about five working days to get an employer PAYE reference number. It is also worth noting, you can only register with HMRC up to two months before your new employees’ first payday.
2. Get a login for PAYE online
Next, you will automatically receive a PAYE reference number after registering with HMRC, which you will put on all the payslips of your new employees. The reference number is also essential for paying salaries and other business expenses, submitting tax information to HMRC, checking what you owe HMRC, and appealing penalties. However, if you didn’t receive the reference number, you must set up PAYE online.
3. Choose the right payroll software
Manually setting up and managing your payroll isn’t ideal for most businesses. So, it helps to use software. First you must define the software features you need so you can make sure you choose the software that works best for your business.
HMRC has free software you can use, and you can also choose from a list of free and paid-for software recognized by HMRC. It is essential to carefully review the software and consider the necessary factors (such as business size, number of employees, using physical or electronic payslips, etc.) before adopting it.
4. Collect and keep records
Record keeping is a must once you start running a payroll because HMRC checks your records to ensure that you pay the correct amount of tax. If your documents are not available or up-to-date HMRC can fine you as high as £3,000.
The records you should keep include what you pay your new employees and the deductions you make, employees’ sickness, maternity and leave absences, tax code notices, and taxable benefits or expenses, among others. These records should be kept digitally on your payroll software or physically on paper and must be kept for three years from the end of the tax year they are from.
5. Tell HMRC about your new employees
When a new employee comes on board you need to collect data from them and share this with HMRC. First, you must check if your new employees meet the criteria (earn £120 or more weekly) to be paid through PAYE. Second, work out your new employees’ tax codes and register them to verify if they still have outstanding student loans. Once you access this information and complete the necessary checks, you can register your new employees with HMRC through Full Payment Submission (FPS).
6. Work out and report pay and deductions to HMRC
If you are operating PAYE as part of your payroll, you must carry out some tasks with your payroll software before your new employees’ payday. These tasks include recording employees’ pay, calculating employees’ National Insurance contributions and deductions from their pay, and generating payslips. Lastly, you must report income and deductions to HMRC through an FPS, which should be sent on or before the payday.
7. Work out and pay HMRC the amount you owe
After reporting to HMRC, you must pay HMRC all you owe them in the last tax month, including income Taxes and National Insurance contributions. Using payroll software makes this task easy for you as it can quickly tell you the amount you need to pay HMRC.
Setting up payroll and PAYE for your new employees is something you must do without delay, and we hope this helps to guide you through the processes involved.
If you’re new to running payroll and getting new employees set up seems daunting, there is another option. Outsourcing your payroll management to providers like Pay Check works for businesses large and small and not only takes the hassle away, but leaves you with the time needed to concentrate on other things.
To make sure your payroll is running smoothly and compliantly, contact us here at Pay Check for your bespoke quote.