Frequently Asked Questions About Payroll
There are no two ways about it; if you have employees working for you, you need to have a payroll system in place. If you don’t get one set up, you run the risk of severe penalties and legal action, so getting payroll is crucial.
Here at Business Quotes, we’ve been helping to direct people towards the best payroll systems for a while now. In that time, we’ve noticed the same questions keep coming up. In an attempt to cover them all in one go, here are our most frequently asked questions about payroll.
How Do I Run A Monthly Payroll?
As an employer, you’ll need to complete several monthly payroll tasks as part of your responsibilities. This consists of:
- Recording the pay of every employee.
- Calculating any deductions, like National Insurance contributions and Income tax.
- Working out the amount of National Insurance that you’re required to pay.
- Producing payslips.
- Reporting all pay and deductions to the HMRC.
The tax month runs from the 6th to the 5th, so set aside a specific time and make it part of your routine. Failure to complete them on time can result in a penalty charge. All of these actions can be completed using modern payroll software.
How Many Employees Do You Need To Have In Order To Use Payroll?
Just one, and that can be you. If you are the sole employee of your own business, you can pay yourself via the PAYE system, provided you have registered as a limited company. It is possible to pay yourself via dividends instead, but this is dependent on the profits of your business and your personal finances will be impacted if you go through a difficult time.
Can Sole Traders Use Payroll?
No, sole traders are excluded from using PAYE. This is because there is no legal distinction between the individual and the company itself. Sole traders will have to keep detailed records of all self-payments to calculate their tax and national insurance contributions. Unless you’re a dedicated finance enthusiast, we’d recommend speaking with an accountant about this.
Can I Outsource Payroll?
Yes, you can. Just under half of all small businesses in the UK currently outsource their payroll. There are advantages and drawbacks to this, so if you’d like to know more, we recommend checking out our detailed article, which can be found here.
What Payroll Legislation Do I Need To Know About?
As you’ve no doubt guessed, there are several legislations relating to payroll that you need to be aware of. There may be nuances in the law depending on which region you’re based in, but the main things to be aware of are:
Employment Rights Act 1996
This outlines the various contract types you can offer your employees, along with related topics like their entitlement to paid leave and salary deductions.
National Minimum Wage Act 1998
This should be pretty obvious, but you’ll need to keep abreast of the minimum wage requirements and ensure you’re not underpaying anyone. The rates tend to change in line with inflation, so keep a close eye on this one.
Income Tax (Earnings and Pension) Act 2003 and Income Tax Act 2007
These are two separate acts but they cover similar ground so we’ll look at both at the same time. As the names suggest, they set out the rules for income tax that you’ll have to follow. The rough figures to bear in mind are that the first £12,500 of income is tax-free and after that, it’s 20% for income up to £50,000, 40% up to £150,000 and 45% for anything higher than that.
Pensions Act 2008
This relates to employee contributions towards a pension fund for staff aged 22 and over (that might seem young but people think about their pensions from an early age and it also covers things like medical retirement). New employees are auto-enrolled into these, but you have a duty to keep your staff informed and give them the chance to opt out if they wish.
We’re sure there are other questions about payroll, but these are the ones that tend to come up most often. Hopefully, this has given you some idea of what to think about. We’re committed to helping you make the right decisions regarding payroll. Click on the option below and within minutes, we’ll find a suitable match.