Employing People And Payroll

If you employ people, then you need to have a payroll system set up in order to pay your employers. You need to follow the government guidelines about PAYE and collecting tax and national insurance. This article will help you to understand the basics of employing people and how to follow the payroll guidelines.

PAYE basics

PAYE stands for Pay As you Earn and is HM Revenue and Customs payroll system for collecting tax and national insurance. If you are an employer, it is your responsibility to collect these items from an employee’s wage each month.

When and how to pay

Each month on the 19^th you need to send the most recent amounts of money that you have collected from the payroll. If you have small amounts each month of under £1,500, then you can usually pay the amounts quarterly.

You need to make sure that you tax your employees on both their regular wage and any benefits such as medical insurance or company cars. Also, at the end of each you as an employer you must pay Class 1A National insurance Contributions. You can manage your PAYE payroll system either by traditional paper methods or online.

Getting started

When you first start out as an employer, all the forms can seem confusing, and you may find it a challenge to get things right. At this stage you might want to use an accountant to sort things out until you can better understand the system. Getting an accountant to run your payroll system is a good idea at first, although eventually running it yourself is going to be cheaper. To get started with PAYE and payroll you should ring the HM Revenue & Customs New Employers Helpline on Tel 0845 60 70 143. They can advise you on setting up the payroll system and PAYE.  They can also send you a starter pack to get things moving.

When to apply PAYE

PAYE is applied to all payments that employees receive as a result of working for you. These include:

• salary and wages
• overtime, and tips
• some expense allowances
• bonuses and commission
• Statutory Sick Pay
• Statutory Maternity/Paternity/Adoption Pay
• Compensation payments

Employee tax codes

When setting up your payroll you need to understand that each employer has a tax code. These codes are issued by HM Revenue and Customs. You use the code along with pay tables to calculate how much you should deduct. You can look up taxable pay tables on the HM Revenue & Customs website at www.inlandrevenue.gov.uk. This tax code is usually located on their P45 form. If they do not have a P45 form, then they need to fill out a P46 form, which can be done online.

Payroll forms

There are various forms that need to understand when setting up PAYE payroll. There are three main forms that can be given to employees. These forms are:

·         Wage slips

·         P45

·         P60

Wage Slips

Wage slips are payroll forms that are between you and your employee. You create them and they show the employee how their pay has been calculate and the amounts involved.

Form P45 

The P45 payroll form will be given to you by new employees who have had a job previously. This form contains the employee’s tax code, and will be returned to them when they leave your employment so that they can give it to their next employer

Form P60

The P60 payroll form shows the deductions for the year, and is given to an employee at the end of a tax year.