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Making sure you pay your staff correctly and on time, is your legal responsibility as an employer. Therefore, it is important you know how to process pay accurately - as well as being aware of any legislation and rules surrounding it. If you get it wrong, this can hugely impact your business, leaving employees unhappy, and yourself open to the potential for financial penalties from HM Revenue and Customs (HMRC).


The purpose of payroll

The payroll process overall manages employees’ salaries, including everything from holiday pay to sick pay. You must pay your employees the right amount they are owed, at the right time according to their contract and the current employment laws (i.e. minimum wage). You also are required by law to deduct any tax and pension from the pay before you send it out.


Government requirements

After you employ your first member of staff, your legal responsibilities change – even if you’re only employing yourself (i.e. sole director of a limited company). As stated by the government, you must register as an employer and set up PAYE, you must do this before the first pay day as it can take up to 5 working days to receive your reference number. You also cannot register more than 2 months before you plan to start paying people.



In order to process payroll correctly, you must stay up to date on compliance and employment laws. Here are some points worth remembering;

  • You must record employees’ National Insurance (NI) and tax, plus report it online under the Real Time Information (RTI) PAYE system
  • Your deductions and payments must be accurate
  • You need to provide each employee with a detailed payslip
  • You must keep payroll records for a minimum of three years
  • You need to pay other deductions such as pension accordingly

It’s also important that annually, you report to HMRC on the previous tax year (which ends on 5th April) and give your employees a P60.


Important records

Throughout the year you must keep record of the following;

  • What you pay your employees and the deductions you make
  • Reports and payments you make to HMRC
  • Employee leave and sickness absences
  • Tax code notices
  • Taxable expenses or benefits

Your records must show you’ve reported accurately, and you need to keep them for 3 years from the end of the tax year they relate to. HMRC may check your records to make sure you’re paying the right amount of tax.

When storing personal employee records, such as their full name and address, NI number, date of birth and gender, you must comply with data protection laws. Making sure you inform the Information Commissioner’s Office (ICO) how your business uses personal information and respond to all data protection requests on behalf of the employee. This includes making sure you maintain and process all tax codes correctly.

You can find more information on the Government website.


Managing payroll

The more employees you have - on different rates paired with various sick pay, holiday pay, expenses, overtime and so on - your payroll will get more and more complex. So you may find that one method you start with, may not be suitable a few months/years down the line.

The main two methods are;

  • In-house – If you choose to manage payroll in house, you first need to decide who is going to manage it. As a director with few employees you may choose to orchestrate this yourself, however larger agencies may delegate this responsibility to a small team. You also need to decide how you/the team are going to do this:

    1. Manual - pen, paper, and spreadsheets

    2. DIY software – Apps can calculate pay and deductions and even fill out tax forms for you

  • Outsourcing- If you are struggling to facilitate a working payroll process, perhaps due to limited time or knowledge, you can choose to outsource your payroll to save you the worry. Even the smallest agencies may choose to outsource their payroll, you just need to decide upon who/how you want to manage this;

    1. Accountants and bookkeepers – When hiring an accountant or bookkeeper for your business, it may be worth seeing if they offer any payroll services, this way you can sort payroll as early as possible

    2. Payroll providers -Some providers will do absolutely everything for you. Others will help with specific tasks only and offer support. If outsourcing is chosen, good communication is essential

It’s essential to find a solution that suits your business, remembering that as your agency grows, your processing methods may also need to grow along side it.

If you find your payroll getting too complex to manage, it may be time to upgrade your methods. After all staying compliant and paying your workers should always be a top priority to make sure everyone stays happy.


Find out how Workflo: Payroll  can help your agency



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