Anyone with a business who hires even just one employee needs to thoroughly understand how to run payroll in the UK. All employers have responsibilities when it comes to payroll, including everything from accurately processing pay to offering pension contributions.
Be confident in your payroll processing with the help of our guide, which has been carefully put together to support business owners of varying experience and abilities.
Importantly, whenever you employ someone new, the HMRC (HM Revenue and Customs) must be informed. It’s the HMRC that will determine the individual’s tax code and National Insurance band, which will change as and when their circumstances do (such as if they have more than one source of income, or they need to pay back tax from a previous year).
Once you’ve successfully recruited, carried out the relevant eligibility checks, clarified if an employee will be enrolled into your workplace pension scheme, and agreed on contracts (including salary), you must tell the HMRC.
With every new employee, you will need to communicate this with the HMRC on or before their first pay day. This process includes collecting employee information, most of which can be gathered from an employee’s P45. In the absence of a recent P45, employees will need to fill out a ‘starter checklist’.
This should include:
Information to pull from an employee’s P45, according to the HMRC, includes:
This information must be kept for payroll records.
You should ask the employee for a copy of their P45, which they should have received – or will receive – shortly after leaving their previous employer. This form displays information regarding their tax code and National Insurance band, which tells you, the new employer, how much tax and National Insurance you need to pay on their behalf.
PAYE (or Pay As You Earn) is the HMRC’s system with which employees pay their tax as they earn it – rather than paying a big bill at the end of the tax year. Whilst it is convenient for employees, it does mean there is more work for the employer to do when it comes to tax administration.
Under the PAYE system, employers need to record all their employee pay information as it happens. This is known as ‘Real Time Information’, (RTI) and must be properly documented using a supporting software like Staffology.
RTI software enables employers to run reports called Full Payment Submissions (FPS), which are then sent to HMRC with each payroll. These reports allow HMRC to have access to all the necessary information, including hours worked and rate of pay.
On, or before, the end of the tax year – the 5th of April – all employers need to send HMRC their final, year-end report. When running your normal FPS, you should be able to simply select a tick box or similar on your software that says, ‘Final submission for year’. This summarizes the payments that have been made throughout the year for the HMRC to clearly see.
After the final FPS has been run and sent to HMRC, employee P60s will be generated. P60s show the employee how much they have been paid throughout the year, as well as what they’ve paid in tax and National Insurance. These must be distributed to all employees in a prompt fashion – before May 31st.
As well as getting to grips with the HMRC’s reporting requirements, the UK also has laws dictating other payroll aspects. These cover everything from minimum wage to parental leave pay.
As a business owner who has just started employing people, it’s vital to have a good understanding of what these laws entail. It’s also important to keep an eye on this area of legislation, as UK employment law evolves all the time.
The National Minimum Wage in the UK goes up every year, in correspondence with inflation rates. The law sets out the minimum amount that an employee must be paid, per hour, according to their age. It’s a good idea to check gov.uk for up-to-date rates; however, for the tax year 2022-2023, these are the minimum wage rates:
|Apprentices (aged 19 or below, or in the 1st year of an apprenticeship scheme)||£4.81|
In 2012, the UK pension auto-enrolment scheme came into force. This is overseen by The Pensions Regulator (TPR) – a governing body that’s in place to make sure UK pensions are protected, and employees are offered auto-enrolment. The scheme demands that all employers offer their employees a workplace pension, into which both parties deposit funds with each payroll run. Employees can opt-out of the scheme, which they may do if they would rather keep more of their pay than save into a pension pot. In this case, the employer does not need to contribute to pension either. If an employee does opt-out, they must be given the option to re-enrol at least every three years.
For employees who do partake in the workplace pension scheme, the minimum contribution of wages is 8%. At least 3% of this must be from the employer. Employees can request to save more into their pension; however, this does not mean that the employer needs to pay in more too.
To ensure that the new pension scheme was accessible and easy to carry out, the UK government commissioned NEST, which is now one of the most popular pension pots used. Staffology integrates easily with NEST, making this software a good choice for companies that use it.
UK employment law also entitles employees to access various types of statutory pay when they are not working for different reasons.
As with minimum wage rates, statutory p
For any company running payroll in-house, it’s important to find a software that’s easy to use and reliable. Whether you’re paying one employee, or you foresee paying more than a thousand, Staffology software is ideal for running payroll in the UK. It’s a HMRC-approved software, meaning it’s compatible with PAYE and RTI, and it’s cloud-based. So, all your information is backed up and available anytime.
Staffology software is built on a comprehensive API. It’s compatible with a huge range of other HR and accounting software, integrating with everything from Sage and Xero to the Nest pension provider. Discover even more about our integrations.
To find out more about how Staffology could support your business needs when it comes to doing payroll in the UK, get in touch and speak to one of the team.