Payroll Simplified

Payroll is the bane of the existence of small and medium-sized businesses (SMEs). You have to pay your employees properly and on time while adhering to all of the rules and regulations. But payroll appears complicated and hard to wrap your head around for most small businesses. That is whereCity  Gates Accountants steps in. We break down payroll so it is easy to grasp and simple.

Here in this guide, we will make payroll easy for you. We will guide you step by step with each step of the process so that you have a complete idea of how to handle payroll in your business. By reading this guide, you’ll be confident enough to prepare payroll for your staff.

What is Payroll?

Before we proceed, let us first define what payroll is. Payroll is the process of compensating your employees. It involves calculating what you owe them, deducting taxes from them, and making sure that all of them are paid on time.

For medium and small-sized companies, payroll is paying your workers weekly, biweekly, or monthly. The process is always the same: compute the wages, take out the taxes, and give your employees their pay.

Now that we’ve discussed what payroll is, let’s discuss how you can implement it in your business.

Step 1: Collect Employee Information

Step one to getting payroll off the ground is collecting all of the employee information you require. That is:

Personal information: Name, address, and tax number.

Banking details: So they can be paid straight into their bank.

Pay rate: How much pay per hour or month?

Deductions: Insurance, pension, tax, etc.

Type of employment: Temporary, part-time, or full-time.

Please keep this information safe and update it periodically. You can keep this information in payroll software, or you can have an accountant do it for you.

Step 2: Choose a Payroll System

Once you have all the information, you will then have to choose a payroll system. You need a system that works for your company and makes paying the employees easier.

There are two basic ways of doing payroll:

  1. Manual Payroll

Under manual payroll, you do everything by yourself. You do wages, taxes, and deductions all from memory. This is fine if you have only a  taxi cab driver few employees who are working for you, but it is a lot of work and can be prone to errors. You will also have to keep up with the tax law and make sure that you are doing it legally.

  1. Payroll Software

Payroll software is much easier. The software does all the math for you, including wages, taxes, and deductions. It will even do your taxes for you. Payroll software is convenient and less likely to make errors.

City Gates Accountants encourages you to utilize payroll software. It is faster, more secure, and much easier. We can help you with the most convenient payroll software for your business or prepare your payroll for you.

Step 3: Calculate Gross Pay

Let’s now calculate how much to pay every employee before deductions are taken out. This is called gross pay.

For example:

Hourly staff: A worker who works 40 hours at £10 per hour will have a gross of £400 (40 x £10).

Salaried employee: Someone who gets £30,000 annually and is paid monthly will receive a gross of £2,500 (£30,000 ÷ 12).

Step 4: Calculate Deductions

Since you also calculated the gross pay, now you will have to subtract the deductions. Deductions are money taken out from the wages of an employee. They can consist of:

Income tax: This is money taken by the government based on how much the worker takes home.

National insurance: In the UK, National Insurance is contributed to by workers for costs such as health and pensions.

Pension contributions: If your company has a pension plan, you will need to make contributions.

Other deductions: This could be student loan repayments or something else that the employee has volunteered to pay.

Payroll software will calculate these deductions for you. But you do need to watch out for any changes in tax law so that you get it right.

Step 5: Calculate Net Pay

Once you have taken the deductions away, you will be left with net pay. This is what the employee has left after all of their deductions have been taken away.

For example:

Gross pay: £2,500

Deductions: £500 (taxes, National Insurance, pension)

Net pay: £2,000 (this is what they get after deductions).

Double-check your calculations to ensure that you haven’t made errors. Paying the wrong amount is a problem.

Step 6: Pay Your Employees

Now that you know how much they should receive as net pay, the next step is to pay the employees. Employees can be paid in different ways:

Direct deposit: This is the easiest method. Funds are directly deposited into the employee’s bank account.

Cheques: Employers also remit some employees in cheques, although this is not common.

Cash: Avoid making payments in cash. It is more difficult to keep proper records and follow regulations.

Make timely payment of your workers. Late payment can put you in a stressful situation and cause legal trouble.

Step 7: Remit Payroll Taxes

After paying your workers, you must pay the right amount of taxes to the government. This is an extremely important step. Your business will be penalized if you don’t pay the right taxes.

If you are located in the United Kingdom, you must pay payroll taxes to HMRC. These are:

PAYE (Pay As You Earn): This scheme enables you to take income tax and National Insurance from your employees.

National insurance contributions: These are paid to HMRC and form part of your employee’s tax.

Pension contributions: If you run a pension scheme, you’ll pay these to the pension company.

You can automate this using payroll software by generating tax reports for you automatically and posting them to HMRC.

Step 8: Maintain Payroll Records

You have to maintain proper payroll transaction records. You have to maintain:

  • Employee name and address
  • Gross and net salary
  • Deductions
  • Date of payment

Keep these for a minimum of three years. Good records will keep you in line and will be beneficial if you’re ever audited.

City Gates Accountants can help you maintain these records in an organized fashion and keep them properly.

Step 9: Provide Pay Slips

You must provide pay slips to all of your employees. A pay slip shows how much an employee is paid, how much is taken from them, and what they receive.

You may provide pay slips on paper or electronically. Pay slips explain the pay and withholdings to employees. Pay slips explain and make things equal too.

Step 10: Remain Current and Compliant

Payroll regulations can change yearly. Taxation rate, deductions, and other regulations might be altered. One has to be updated about these changes.

City Gates Accountants will update you on payroll regulation changes. We will keep your business updated about taxation regulations so that you can sleep peacefully.

Conclusion

Payroll needn’t be a pain. Following the steps in this guide, you can pay your employees easily and accurately. City Gates Accountants can do even better. We can help with a payroll system or sort it all out for you. Payroll doesn’t have to be difficult and stressful with the right tools and information. If you are finding it difficult, we can talk you through it!

Frequently Asked Questions

  1. What’s the easiest way to manage payroll for my business?

The easiest method is to avail yourself of the payroll software. It will calculate the wages, taxes, and deductions for you automatically. Or, you can also hire City Gates Accountants to prepare the payroll for you.

  1. Do I need to give employees a pay slip?

Yes, in law, you are required to provide pay slips to employees. Pay slips describe the gross wages workers earn, the deductions, and the net they are paid.

  1. How do I calculate payroll taxes?

Payroll taxes are calculated on the wage or salary the employee is being paid. You can calculate this through payroll software. You can also seek advice from HMRC.

  1. Can City Gates Accountants help with payroll?

Yes! City Gates Accountants will take your payroll from start to finish. We’ll do it all just right and on time.

  1. When do I pay my employees?

Most businesses pay employees on a weekly, bi-weekly, or monthly basis. You can choose the frequency best for your business.