Setting up payroll for the first time can be daunting for first-time business owners. In the UK alone, there were 32.4 million people on payroll in December 2021. Just before the pandemic, the number was even higher at 33 million in February 2020.
Since then, payrolled employment has only increased, with the most recent reports from HMRC and the Office for National Statistics showing that since February 2020, the number of payrolled employees has gone up by 1.8%. This means it’s now at 33.5 million people, which means that doing it properly is more important than ever.
The first time you set up payroll is the most challenging, as you are still learning the ins and outs of how to do it effectively. Once you settle into a rhythm, you will find that payroll becomes easier. If you’d like, you can choose a payroll provider to take care of it for you or set up payroll yourself.
This article discusses both options for setting up payroll and provides insight into how to set up payroll for the first time.
How to Find a Payroll Company
If you would like to outsource your payroll to a third party, there are a few things that you should keep in mind. This section will discuss what qualities and standards to look for in a payroll service provider and what questions to ask them.
What to Look for in a Payroll Provider
Things to think about when choosing a payroll provider are:
- The needs of your company. Choose your payroll model based on the needs of your business. If you’re a global company or have multiple human capital management needs, you may want Payroll Comprehensive Outsourcing Services. If not, Managed Services are likely a good fit.
- Efficient and effective implementation. Choose a payroll service provider that has a history of quickly and effectively implementing payroll for businesses. They should be adept at working with your staff to ensure a smooth transition and provide support while your employees still learn how the setup works.
- Data security and privacy. Any payroll provider worth their salt will have security practices in place to ensure that they won’t lose access to your data due to a data breach. They’ll need robust resilience policies in place to keep you from suffering a major loss that will cost you more money in the long run.
- Making data analytics a part of payroll. Find a vendor who will enable you to check your data analytics and provide insight to your company. Use a company that provides a centralised data set and can provide you with custom analytics. They should also have industry-wide data for benchmarking and predictive analysis.
- Streamlining operations. The aim of using a payroll service is to make your life easier, so it’s important to find one to do that. They should spot where you can reduce costs, improve efficiency and improve the engagement of your employees.
Questions You Can Ask a Payroll Company
Here are some questions to ask a payroll service provider before you commit to outsourcing your payroll to them:
- Is your payroll software available in the cloud?
- Does it provide process automation and other advanced functionalities?
- Does your payroll software have advanced security features?
- Does it integrate with HCM software?
- Will it help my business continue to grow and scale?
- Will it work with my company’s digital transformation efforts?
- Will you provide support as we adjust to the new software platform?
- Is it HMRC approved?
If you find a payroll services provider that can do the above, you will be well on your way to success. If not, it’s time to start again from square one and find another service provider.
Setting Up Payroll for Your Business
Are you planning to set up payroll yourself? In this section, you’ll find out which steps to take the first time you set up payroll for your business.
How to Register as an Employer
First, you’ll need to register with HMRC. If you click the link provided, you’ll be led to the www.gov.uk site to register as an employer. There are two options there: the first is for limited companies with one to nine directors. If you’re another type of business, click the “Next” link under that heading.
Don’t register yourself (the company director) as an employer - the employer name you list should be that of your company. You shouldn’t register too far in advance or too late - so a good rule of thumb is to register one month before your first employee payday.
Once you’ve answered the questions, you’ll be given a 12-digit government gateway number and be asked to log in. You should see PAYE information, but if you don’t, you’ll need to enrol in PAYE to gain online access to the information.
Once you’ve registered, getting your PAYE online login information will take some time. Once you’ve got your employer PAYE reference and an accounts office reference. (Those two numbers will not be the same.)
Choose Your Preferred Payroll Software
Think about the payroll features you want for your software and make sure it reports PAYE information online. Here are some things to ask yourself:
- Do I need to produce payslips?
- Do I want software that makes pension payments?
- Should my software record pension deductions?
- Should my software be able to pay people with different methods (temp work and full-time, weekly and monthly pay)?
- Do I want it to generate an Employer Payment Summary report or Earlier Year Update to HMRC?
If you’d like an HMRC-approved software option, there are several for you to choose from.
If you switch to another software option during the year, you must take specific steps to avoid incorrect calculations or record duplications.