What is payroll processing?

 12 Nov 2018

What is payroll processing?

Payroll is the process of pay management involving employee wages and tax obligations to HMRC for the business and on behalf of employees. As an internal process, it is an important aspect of any business and is likely to be the largest expense whilst also coincides with being a time-consuming process. Each business can opt for various pay length periods to suit them from payroll being processed either weekly, biweekly, semi-monthly or monthly. The processes involved in payroll are considered achievable for most business owners to complete, however the requirement of an organised system, up-to-date knowledge of current regulations and correct manual processing cause payroll to be considered complicated.

What are the steps for new business undertaking payroll?

Enrolling new employees

Every employee has to file some obligated paperwork which includes information to assist in processing the correct tax band such as pension contributions and National Insurance details. A key aspect to remember is the difference between freelancers and employees, whereby you are responsible for employee tax processes whilst freelancers do not have anything deducted as they are responsible for their own benefits and taxes.

Obtain and use working schedule information

This step is only applicable if you have employees on hourly contracts, meaning there can be a fluctuation to their final salary each payroll dependent on hours completed. It is strongly recommended to have managers verify an employees hours to prevent overspending on the payroll. Alternatively, if you have salaried employees then this will be simple and consistent between months.

Processing payroll

Whilst processing your payroll, you will be provided with an indication of much each employee costs the business instead of their gross wage. Processing includes filed all employees gross wages based on either their hours worked or salary. These figures will be supplemented by deductions to finance benefits and tax obligations. As mentioned, benefits and optional contributions are deducted such as pension and contributions to business shares. Following completion of these, tax obligations must be calculated based upon the tax band based on their salaries. Reports based on the business tax can be required at the end of the financial year to HMRC. Additional process may be required by your business, ensure you’re up to date on your payroll obligations via gov.uk/browse/employing-people/payroll.

Issue payments

Once you’ve completed all your payroll requirements and they reports have been checked to ensure there are no errors. It’s the time to process employee payments which are a legal obligation and even failure to pay them on time could result in legal repercussions. The most efficient and common payment method is via direct deposit into employee bank accounts for security and tax legality reasons.

Why is payroll processing important?

Processing your business’ payroll is a core internal function for several reasons:

  • It’s a legal obligation to the employees but also to HMRC

  • Ensuring that your consistent pay employees and payments are made on-time will show the companies financial stability which has an impact on employee satisfaction and productivity.

  • Mitigation payroll errors will be more costly to the business than taking more time and care when processing payroll.

What to do if you can’t process your payroll?

Many companies can struggle to complete their obligated payroll processes for several reasons. These reasons include being unable to employ a dedicated individual to perform the process, more cost-effective to outsource to a professional payroll bureau, not having the ability to understand or maintain up to date knowledge of obligations.

If your business falls into any of the categories listed or a consequence of an alternative reason. There is a plethora of information on the gov.uk website or speak to a professional bureau who can advise you on outsourcing your payroll.