How to Set up Payroll for a Small Business
Payroll can be a tricky process to unravel, even for small businesses. It's one of the most tedious and time-consuming business tasks. However, it's also the most necessary. The last thing you want is to see good employees leaving because you fail to pay them correctly. In addition, overpayments or underpayments can be challenging to detect and often trigger a time-consuming audit. So, here are five tips for streamlining and setting up payroll for a small business.
1. Register with HMRC
When setting up payroll, the first step is to register with HM Revenue and Customs (HMRC), the authority responsible for tax payments and customs in the UK. They collect taxes to fund UK's public services and assist individuals and families in dire need of financial support from the government. The process of registration is simple. First, you need to register as an employer with the HMRC. Take note of your login credentials for the PAYE Online website. Next, choose the payroll software to record the employee's details, compute their pay and deductions, and send reports to HMRC. Collect and keep records and submit details about your employees to HMRC. More importantly, ensure you pay HMRC the tax and insurance you owe your employees. You must accomplish annual reports and taxes for the coming tax year.
2. Learn about Payroll Software
It can be daunting to compute the salary of your employees manually. You must consider investing in payroll software that can automate the process involved in managing employee salaries, setting up direct deposits, withholding taxes, keeping accurate records, and more. These are all time-consuming when done manually and prone to mistakes. But before you invest in payroll software, take the time to research and learn how the different software works. When researching payroll software, you should look out for the features. It's common to assume that all payroll software is the same. Because of this, small business owners will choose the software according to price only to find out later that it doesn't meet the specific needs of the payroll functions of their business. One of the most significant features is direct deposit. Employees would prefer direct and instant access to their paychecks. Therefore, the software should offer the option for direct deposit. It also reduces the hassles of manually depositing the payment through their bank accounts. The software should also process, run, and customise payroll reports. Since every organisation is different, the payroll platform you choose should have the option for customisation. Customisable reports allow you to create databases based on some of the most critical metrics of your company. Determine the type of reports you need and use that as your basis in searching for the best payroll software. Payroll integration is another feature to watch out for. It refers to the software's ability to integrate new technologies into your system. The software should be able to seamlessly integrate into your organisation's unique ecosystem, such as your existing programs, while also meeting your organisation's payroll needs.
3. Recruit Payroll Specialists
Small business owners should consider recruiting payroll specialists who can help with the company's payroll processes while managing the entire payroll system. They will handle the company's employee and benefits programs while ensuring compliance with state and federal laws and regulations. While they can also carry out other tasks, they are mainly responsible for overseeing the payroll system. While some small businesses are hesitant about hiring a payroll specialist, there are skills these specialists have that make them beneficial for your company. Aside from computing and processing payroll, they can also administer employee benefits and retirement programs, such as healthcare plans. In addition, payroll specialists can help resolve salary disputes, review invoices, report costs and fees, and more. Payroll can be daunting to handle for those not trained for the job. It can lead to wasted time and costly mistakes that can be catastrophic for small businesses. Outsourcing a payroll specialist may cost more than hiring a regular employee, but it can benefit you in many ways. Make sure to choose a reputed specialist with several experiences in handling payroll in your industry.
4. Keep Records
Record keeping is an essential component of payroll management. The law also requires employers to keep some important documents about their employees. Under the Fair Labor Standards Act, employers should retain employees' payroll records for at least three years. Meanwhile, they should keep timesheets and other documents showing how to compute wages for a year. They must also keep records of involuntarily terminated employees. These should remain in company records one year from the termination date. Payroll records contain valuable information regarding wages and taxes, helping businesses create a better budget and efficiently manage labour expenses. Companies can also use these documents to verify proof of employment for some reasons, such as when employees apply for a loan. You must keep the specific payroll and tax records required by federal, local, and state laws. It can include total hours worked, pay rates, pay period dates, etc. Failure to do so can get you into trouble with the law.
5. Know other Payments to be Aware of
Aside from the wages, there are other things you may have to spend for your employees. Examples are statutory pay, expenses and benefits, deductions, and pensions. Make sure to consider this when processing and managing payroll. The statutory pay can refer to sick pay or those going on maternity, etc. Record these in the payroll software since these will have taxes like the salary. Expenses can include uniforms, company cars, etc. Consider the tax deductions and insurance, which you will subtract from employees' wages. When you start offering loans, include the payment when computing the payroll. Pensions are another component of payroll. Make deductions for pension after you take off the national insurance. Usually, you make pension deductions before you subtract tax, but double-check this with the pension provider. You also need to pay employer contributions to the pension plans of your employees.