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How to: Paying employees

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As an employer, you normally have to operate PAYE as part of your payroll process. PAYE is HMRC’s system to collect Income Tax and National Insurance from employment. However you won’t need to register for PAYE if none of your employees:

You will though still need to keep accurate records of payments made.


Getting started

If you decide you need to pay employees you’ll first need to decide how often you will pay your employees. Monthly pay is a popular choice for employers because the payroll will only need to be processed 12 times per year. You’ll then need to decide whether you are going to process it yourself using payroll software or you are going to use an accountant or payroll bureau to run the payroll for you.

If you decide to run it yourself you’ll first need to register as an employer with HMRC, get a login for PAYE Online, and choose payroll software to record your employee’s details, calculate the pay and deductions, and to report to HMRC.


Employment contracts

Most employees must be given a Written Statement of Terms and Conditions of Employment within two months of starting work. It should contain their main terms and conditions including:


Payments and deductions

Payments to your employees include their salary or wages, as well as any tips or bonuses, statutory sick or maternity pay. For most employees you’ll need to deduct tax and National Insurance from these payments. Other deductions you may need to make include student loan repayments or pension contributions. Your payroll software will work out how much tax and National Insurance you owe, including any employer’s National Insurance that may be due.


Reporting to and paying HMRC

Next you’ll need to report your employees’ payments and deductions electronically to HMRC on or before each payday. You’ll usually be due to pay the tax and National Insurance calculated by your software over to HMRC by the 22nd of the following tax month (19th if paying by post).


Other things to report

As part of your regular reporting you should also tell HMRC for example when a new employee joins, or when they reach State Pension age, or become a director. You’ll also need to complete some annual reports and tasks at the end of each tax year including providing P60’s (and P11D’s as appropriate) to your employees, and telling HMRC about any expenses or benefits incurred by your employees.


The National Minimum Wage (NMW)

Most workers are entitled to be paid the NMW. The required rate of pay per hour depends on age and whether they are an apprentice. It usually changes every October. There are no exemptions for small businesses.


Absence

There are various reasons why a worker may be absent from work and you should fully understand when they are statutorily entitled to pay during their absence. You should also check whether your workers' contracts enhance these entitlements.


While this is far from an exhaustive list, reasons for absence from work may include:


Automatic Enrolment Pensions

Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute towards it. From 1 October 2017 you will have legal duties as an employer on the day your first employee starts work. The phased introduction of Automatic Enrolment also means all existing eligible employees will have been given the opportunity to enrol in the employer’s pension scheme by February 2018 at the latest.


Payroll is a massively complex and legalistic subject and we recommend you obtain the assistance of a professional when processing payroll and making payroll decisions. Contact us for further help.