Posted: Tue 18th Oct 2022
Many owners struggle with managing payroll effectively alongside the other demands that come with running a small business.
However, in the year of ‘the great resignation’ it’s essential that employers do everything to keep staff happy and motivated, which includes paying them accurately and on time.
Here are some of the common mistakes small business owners make with payroll (and how to avoid them):
You do not need to register for PAYE if none of your employees are paid £123 or more a week, get expenses and benefits, have another job or get a pension.
You are required to keep payroll records.
If you run payroll yourself, you’ll need to report employees’ payments and deductions to HMRC on or before each payday.
You will need to run regular reports and inform HMRC of changes, such as a new employee starting or a change in circumstance.
It sounds obvious, but it’s essential that staff are paid on time, and on the same date each month. With the rising cost of living, knowing when your salary is incoming is imperative to paying bills and other commitments.
Allow at least a week in advance to get the payroll run planned.
Employees can be penalised and over or under-charged if they are on the wrong tax code.
Encourage staff to take control and ensure they are on the right code by referring to the Government gateway site.
It can be complicated to calculate wages for staff who work on different shift patterns. Staff could be under or overpaid. Use a salary calculator to help you understand who should be paid what.
Items on the payslip, such as expenses, are not subject to tax and NI deductions. Take time to check what is being taxed and what isn’t.
Over 65s and under 16s don’t have to pay National Insurance which should be reflected in the payroll and on pay slips.
This varies if you offer enhanced sickness or holiday pay or statutory.
Following the increase in NI contributions, employers are now advised to include the line ‘1.25% uplift in NICs funds NHS, health and social care.’
Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute to it as ‘automatic enrolment.’
You must enrol and make an employer’s contribution for all staff who:
Are aged 22 and state pension age
Earn at least £10,000 per year
Normally work in the UK (including those who are based in the UK but travel for work)
When you first start out it makes sense to operate payroll manually, but as you scale you will soon find this unmanageable.
Mistakes can be made when you’re calculating pay in this way, and delays are inevitable. We would always recommend using HR or payroll software to help. There are numerous solutions on the market, which in the long run will save you precious resources.