Payroll Compliance – Where To Start

With tax and national insurance deductions, coupled with overtime, holiday pay, and even pension contributions, payroll is one of the most complex processes for any new business to master.

In this beginners guide to payroll compliance, specialists HWB Accountants, look at your responsibilities as an employer and the steps you need to take to stay on the right side of the law when it comes to processing employee payroll.

How to Register For PAYE with HMRC

The first thing to do is to determine if you need a PAYE scheme to pay your employees. You will not need to register for PAYE if you are paying employees under the lower earnings limit and they do not get any expenses or benefits. The employees must also not have any other income in the form of another job or pension. If you don’t require a PAYE scheme, you must still keep records of the payments made.

Assuming you do require a PAYE scheme, you’ll need to register as an employer with HMRC to get a PAYE reference number. This applies even if you’re only paying yourself as a Company Director.

Registration can take up to ten days when completed online, so be sure to allow yourself enough time, as you’ll need your PAYE number in order to submit payroll using a Full Payment Submission (FPS).

Decide How You Will Process Your PAYE Accounts

Payroll compliance is essential, so you will need to make a decision about whether you will handle this in-house or outsource it to a specialist payroll provider.

Many SMEs elect to go down the outsourcing route as it offers reassurance that your payroll is being properly managed and compliant with the law.

Wherever possible, we always encourage you to automate your payroll process, to avoid human error as mistakes can be costly to correct and cause you a headache down the line.

Setting Up a New Employee in Payroll

Whether you opt to keep payroll in-house or decide to outsource it, you’ll need to set-up each new employee your company hires on your payroll system.

This involves gathering some basic information about the employee’s personal and working status, including his or her:

  • Name and home address
  • Date of birth, NI Number and passport number (if available)
  • Bank account details
  • Starting declaration and any completed tax forms (P45 or HMRC’s Starter Checklist)

In the UK it’s also a legal requirement to automatically enrol any eligible employees into a workplace pension scheme. This means that a proportion of the salary they earn gets taken at source and put into a pension in their name.

You must enrol any eligible staff members within 6 weeks of them meeting the workplace pension criteria and notify them in writing that you have done so.

To find out more about setting up a workplace pension scheme and how to identify employees that are eligible visit the HMRC website here.

Keeping Accurate Employee Records and Reporting to HMRC

Part of staying payroll compliant as an employer is ensuring that you hold an accurate and up-to-date employee record for everyone working in your business.

It’s imperative that any changes to your employee’s working hours or income is adjusted in your payroll system in real time. Likewise, any changes to their marital status or taxable benefits should also be recorded, as these can impact the amount of tax an employee is liable for.

You also need to ensure that in every pay cycle you’re submitting your payroll information to HMRC and paying your tax and NI on time. Submitting your information late, or failing to comply, puts you at risk of late payment penalties.

In addition, your payroll records must be securely stored in one place. You should also get into the habit of conducting regular payroll audits throughout the year to ensure all the information you hold is correct.

Staying Up To Date With The Latest Payroll Legislation

Finally, one of the biggest hurdles businesses face when it comes to staying payroll compliant is keeping up to date with the latest legislation.

PAYE compliance rules often change, and it can be wise to sign-up to HMRC and industry emails, as well as to attend regular accounting seminars and webinars, to ensure you’re processing your payroll and employee records to the very latest requirements.

Ultimately, however, the easiest and most guaranteed way to keep your business payroll compliant is to outsource your payroll accounting to a specialist accountant. They’ll be armed with the latest payroll practices to ensure you maintain your legal obligations to HMRC and your employees.

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