Running payroll in the UK involves more than paying employees their wages. Employers must calculate pay correctly, deduct the right tax and National Insurance, report payments to HMRC and meet their payroll deadlines.
If you are employing someone for the first time or managing a small business, understanding the process can help you avoid mistakes and keep your payroll organised.
1. Register as an Employer with HMRC
Before paying your first employee, you will usually need to register as an employer with HMRC. You should do this before the first payday, allowing enough time for registration to be completed.
Once registered, you can set up your payroll process and prepare to report employee payments.
2. Collect Employee Information
Before running payroll, gather the information needed to calculate each employee’s pay and deductions.
This usually includes:
- Employee’s full name and address
- National Insurance number, where available
- Tax code and starter information
- Salary or hourly rate
- Bank details for salary payments
- Pension information, where applicable
Having these details ready helps reduce errors when processing wages.
3. Calculate Gross Pay
Gross pay is the amount an employee earns before deductions.
For salaried employees, this is usually based on their agreed salary and pay frequency. For hourly workers, you will need to calculate hours worked and include any overtime or bonuses.
You should also check whether the National Minimum Wage or National Living Wage requirements apply to the employee.
4. Work Out Tax and Other Deductions
Once gross pay is calculated, work out the deductions that apply to each employee.
These may include:
- Income Tax: Based on the employee’s tax code and taxable pay.
- National Insurance: Calculated using the relevant rates and thresholds.
- Pension contributions: Where workplace pension contributions apply.
- Other deductions: Such as student loan repayments, if required.
The employee’s take-home pay is the amount left after the relevant deductions.
Payroll software can help calculate these figures, but you should still check that employee details and tax codes are correct.
5. Report Payroll to HMRC
Employers generally need to send a Full Payment Submission (FPS) to HMRC on or before the date employees are paid.
The FPS reports details such as employees’ pay, tax and National Insurance deductions.
You will normally use payroll software to submit this information. If you pay employees late or make a mistake, you may need to correct your payroll records and submissions.
6. Pay Employees and HMRC on Time
After completing the payroll calculations, pay employees their net wages and provide payslips showing their pay and deductions.
You must also pay the tax and National Insurance owed to HMRC by the relevant deadline. For many employers, the standard deadline is the 22nd of the month when paying electronically, although different arrangements and deadlines can apply.
Keeping a calendar of payroll dates can help you avoid missed payments and late submissions.
7. Check Workplace Pension Duties
Employers must assess their employees for workplace pension purposes and meet their automatic enrolment duties where applicable.
Depending on the employee and circumstances, this may involve enrolling eligible staff and making employer pension contributions.
Remember to include relevant pension deductions and contributions in your payroll records.
Should You Use Payroll Software or an Accountant?
Payroll software can help businesses calculate wages, manage deductions and submit reports to HMRC. It may be suitable if your payroll is straightforward and you have time to manage it each pay period.
However, payroll can become more complicated when you employ several people, pay overtime, manage staff benefits or deal with changing tax codes.
A payroll accountant can help you manage calculations, submissions and payroll records, leaving you more time to focus on running your business.
Common Payroll Mistakes to Avoid
A few common errors can create extra work for employers:
- Using an incorrect employee tax code
- Forgetting to submit an FPS on time
- Calculating overtime or deductions incorrectly
- Missing HMRC payment deadlines
- Overlooking workplace pension duties
- Failing to keep accurate payroll records
Reviewing payroll before each payday can help catch errors early.
Final Thoughts
Doing payroll in the UK becomes easier when you follow a clear process: register with HMRC, collect employee details, calculate pay and deductions, submit payroll information, and pay employees and HMRC on time.
For small businesses that want to reduce the time spent on payroll administration, professional support can be a practical option.
Need help with payroll? Speedia provides payroll services for UK businesses, helping employers manage payroll calculations and reporting. Visit the Speedia website to discuss your requirements and find out how its services could support your business.
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