Running a payroll for your first employee is a significant milestone for any small business owner. It signifies growth and success in your venture. However, managing payroll can be a complex and time-consuming process if not done correctly. This guide will take you through the step-by-step process of running payroll for your first employee, ensuring accuracy and compliance with payroll regulations. From setting up your payroll system to reporting and remitting payroll taxes, we've got you covered.
The Importance of Proper Payroll Management
Proper payroll management is essential for several reasons. Firstly, it ensures that your employees are paid accurately and on time, maintaining their trust and satisfaction. Additionally, accurate payroll management helps you comply with tax regulations, avoiding penalties and legal issues. It also helps you maintain an organised record of employee wages, deductions, and tax withholdings, which is necessary for financial reporting and audits.
Understanding Employee Data and Payroll Requirements
To run payroll smoothly, you need to gather and maintain accurate employee data. This includes personal information, such as names, addresses and National Insurance numbers, as well as employment details like start date, job title, and salary. You also need to understand the specific payroll requirements for the UK, such as income tax rates, National Insurance and other deductions, and reporting obligations.
Choosing the Right Payroll System for Your Small Business
Selecting the right payroll system is crucial for efficient and error-free payroll management. There are various options available, ranging from manual calculations using spreadsheets to dedicated payroll software. For small businesses, we’d recommend to invest in a user-friendly and affordable payroll software specifically designed for small business payroll needs. Look for features like automatic tax calculations, direct deposit capabilities, and easy-to-use interfaces.
- Efficiency and Accuracy: The Benefits of HR and Payroll Software for Small Businesses
- How Much Does Payroll Software Cost vs Outsourcing Payroll?
- 6 Best Payroll Software and HR Tools for Startups in 2023
Step 1: Setting Up Your Payroll System
The first step in running payroll for your first employee is setting up your payroll system. If you have chosen a payroll software, follow the instructions provided by the vendor to set up your account. This typically involves entering your business information, PAYE and Government Gateway details, and bank account for direct deposit. Ensure that all the necessary tax forms and documents are readily available to complete the setup process.
Once your payroll system is set up, we’d recommend to familiarise yourself with the platform’s features and functionalities. Explore how to add employees, set up pay schedules, and customise deductions. Taking the time to understand your payroll system will save you valuable time and effort in the long run.
If you’ve chosen Onfolk as your payroll provider, we’ll guide you through your onboarding and be on hand for any questions relating to running your first payroll.
Step 2: Collecting Employee Information and Data
Collecting accurate employee information and data is crucial for payroll accuracy. When hiring your first employee, ensure that you gather all the necessary details required for payroll processing. This includes their full name, address, social security number, and employment details like start date and job title. Create a standardised form or document to collect this information, and keep it securely stored for future reference.
In addition to basic employee information, you may also need to collect other details based on your specific payroll requirements. Ensure that you are aware of any additional data you need to collect and have a streamlined process in place to acquire it from your employees.
Step 3: Calculating Employee Wages and Deductions
Accurate calculation of employee income and deductions is crucial for running payroll smoothly. Depending on your payroll system, you may need to manually enter employee hours worked or use a time-tracking system integrated with your payroll software. Ensure that you have a clear understanding of how your payroll system handles salary calculations and any additional factors like overtime or bonuses.
Deductions play a significant role in payroll processing. This includes income taxes, National Insurance deductions, student loans and any voluntary deductions like health insurance premiums or pension plan contributions. Familiarise yourself with the applicable tax rates and deduction formulas to ensure accurate calculations.
Onfolk calculates all salaries and deductions automatically, so all you have to do is do a quick check and submit your payroll for the month - a 3-click process.
More info about Onfolk’s payroll product
Step 4: Processing Payroll and Generating Payslips
Once you have collected employee data and calculated salaries and deductions, it's time to process payroll and generate payslips for employees. With a reliable payroll software, this step becomes streamlined and automated. Payroll products such as Onfolk will automatically generate payslips for you and send them to employees on payday.
However if your payroll software doesn’t offer automatic payslips, simply enter the necessary data, review the calculated amounts, and approve the payroll run. The software will generate paychecks or direct deposit files, ready to be distributed to your employees.
Ensure that you review and verify the payroll summary before finalising the process. Double-check the accuracy of employee data, wage calculations, and deductions. This step is crucial to avoid any errors or discrepancies that could lead to disgruntled employees or legal complications.
Step 5: Reporting and Remitting Payroll Taxes
Running payroll involves not only paying your employees but also fulfilling your tax obligations. As an employer, you are responsible for withholding and remitting various taxes on behalf of your employees. These usually include paying employment taxes via PAYE as well as pension contributions to your pension provider.
A modern payroll software such as Onfolk will calculate and report payroll-related taxes to HMRC and your pension provider every month once you’ve run your payroll. All that’s left for you to do is to pay those taxes, which can easily be done through a direct debit.
More info about Onfolk’s payroll product
Recommended Payroll Software for Small Businesses
When it comes to running payroll for your first employee, using reliable payroll software can make the process significantly easier and more efficient. Whatever payroll provider you choose, we’d recommend to prioritise the following:
- It is recognised by HMRC as an official payroll provider: A HMRC-recognised payroll provider is one that can report PAYE figures to them on your behalf. Without this stamp of approval, you cannot be sure they’ll report your payroll figures to HMRC, let alone accurately or on time.
- It specialises in payroll for small businesses: Making sure your payroll software focusses on the needs of small businesses will make your life easier (save you time, money and be easy to use).
- The payroll software includes a HRIS and time-off management: Go for a payroll software that doubles up as HRIS and time-off management software. This way all your team's pay, documents, employment, records, time off is in one place and always up to date.
- It provides fast and reliable customer support: Although most of the product will mostly be automated and self-serve, having good customer support available when you need it is key. This is because you’ll probably need to reach out right before payday - short SLAs for response times is what to look for here.
More about this topic:
About Onfolk
Onfolk is a payroll company software that offers HR software with payroll integrated to it in order to minimise the amount of admin involved with paying your team and managing their data.
Think effective payroll automation, allowing to run payroll in the UK in a matter of minutes. It is also an official HMRC payroll software, meaning all HMRC reporting is done automatically for you every month. If you’re familiar with Gusto in the US, Onfolk is exactly that for the UK.
Our customers’ favourite features include:
- 90% automated payroll every month
- Full GDPR compliance, with all employee and payroll data encrypted and securely stored in the cloud
- HRIS synced with payroll - specialised in small business payroll software
- Time off management and annual leave calculations included
- Automated onboarding and offboarding
- Pensions fully integrated with Nest, Smart Pensions and more
- Integrations with accounting softwares such as Xero and Quickbooks
- People insights, custom reports and org charts come built in
Running a payroll for your first employee is a significant milestone for any small business owner. It signifies growth and success in your venture. However, managing payroll can be a complex and time-consuming process if not done correctly. This guide will take you through the step-by-step process of running payroll for your first employee, ensuring accuracy and compliance with payroll regulations. From setting up your payroll system to reporting and remitting payroll taxes, we've got you covered.
The Importance of Proper Payroll Management
Proper payroll management is essential for several reasons. Firstly, it ensures that your employees are paid accurately and on time, maintaining their trust and satisfaction. Additionally, accurate payroll management helps you comply with tax regulations, avoiding penalties and legal issues. It also helps you maintain an organised record of employee wages, deductions, and tax withholdings, which is necessary for financial reporting and audits.
Understanding Employee Data and Payroll Requirements
To run payroll smoothly, you need to gather and maintain accurate employee data. This includes personal information, such as names, addresses and National Insurance numbers, as well as employment details like start date, job title, and salary. You also need to understand the specific payroll requirements for the UK, such as income tax rates, National Insurance and other deductions, and reporting obligations.
Choosing the Right Payroll System for Your Small Business
Selecting the right payroll system is crucial for efficient and error-free payroll management. There are various options available, ranging from manual calculations using spreadsheets to dedicated payroll software. For small businesses, we’d recommend to invest in a user-friendly and affordable payroll software specifically designed for small business payroll needs. Look for features like automatic tax calculations, direct deposit capabilities, and easy-to-use interfaces.
- Efficiency and Accuracy: The Benefits of HR and Payroll Software for Small Businesses
- How Much Does Payroll Software Cost vs Outsourcing Payroll?
- 6 Best Payroll Software and HR Tools for Startups in 2023
Step 1: Setting Up Your Payroll System
The first step in running payroll for your first employee is setting up your payroll system. If you have chosen a payroll software, follow the instructions provided by the vendor to set up your account. This typically involves entering your business information, PAYE and Government Gateway details, and bank account for direct deposit. Ensure that all the necessary tax forms and documents are readily available to complete the setup process.
Once your payroll system is set up, we’d recommend to familiarise yourself with the platform’s features and functionalities. Explore how to add employees, set up pay schedules, and customise deductions. Taking the time to understand your payroll system will save you valuable time and effort in the long run.
If you’ve chosen Onfolk as your payroll provider, we’ll guide you through your onboarding and be on hand for any questions relating to running your first payroll.
Step 2: Collecting Employee Information and Data
Collecting accurate employee information and data is crucial for payroll accuracy. When hiring your first employee, ensure that you gather all the necessary details required for payroll processing. This includes their full name, address, social security number, and employment details like start date and job title. Create a standardised form or document to collect this information, and keep it securely stored for future reference.
In addition to basic employee information, you may also need to collect other details based on your specific payroll requirements. Ensure that you are aware of any additional data you need to collect and have a streamlined process in place to acquire it from your employees.
Step 3: Calculating Employee Wages and Deductions
Accurate calculation of employee income and deductions is crucial for running payroll smoothly. Depending on your payroll system, you may need to manually enter employee hours worked or use a time-tracking system integrated with your payroll software. Ensure that you have a clear understanding of how your payroll system handles salary calculations and any additional factors like overtime or bonuses.
Deductions play a significant role in payroll processing. This includes income taxes, National Insurance deductions, student loans and any voluntary deductions like health insurance premiums or pension plan contributions. Familiarise yourself with the applicable tax rates and deduction formulas to ensure accurate calculations.
Onfolk calculates all salaries and deductions automatically, so all you have to do is do a quick check and submit your payroll for the month - a 3-click process.
More info about Onfolk’s payroll product
Step 4: Processing Payroll and Generating Payslips
Once you have collected employee data and calculated salaries and deductions, it's time to process payroll and generate payslips for employees. With a reliable payroll software, this step becomes streamlined and automated. Payroll products such as Onfolk will automatically generate payslips for you and send them to employees on payday.
However if your payroll software doesn’t offer automatic payslips, simply enter the necessary data, review the calculated amounts, and approve the payroll run. The software will generate paychecks or direct deposit files, ready to be distributed to your employees.
Ensure that you review and verify the payroll summary before finalising the process. Double-check the accuracy of employee data, wage calculations, and deductions. This step is crucial to avoid any errors or discrepancies that could lead to disgruntled employees or legal complications.
Step 5: Reporting and Remitting Payroll Taxes
Running payroll involves not only paying your employees but also fulfilling your tax obligations. As an employer, you are responsible for withholding and remitting various taxes on behalf of your employees. These usually include paying employment taxes via PAYE as well as pension contributions to your pension provider.
A modern payroll software such as Onfolk will calculate and report payroll-related taxes to HMRC and your pension provider every month once you’ve run your payroll. All that’s left for you to do is to pay those taxes, which can easily be done through a direct debit.
More info about Onfolk’s payroll product
Recommended Payroll Software for Small Businesses
When it comes to running payroll for your first employee, using reliable payroll software can make the process significantly easier and more efficient. Whatever payroll provider you choose, we’d recommend to prioritise the following:
- It is recognised by HMRC as an official payroll provider: A HMRC-recognised payroll provider is one that can report PAYE figures to them on your behalf. Without this stamp of approval, you cannot be sure they’ll report your payroll figures to HMRC, let alone accurately or on time.
- It specialises in payroll for small businesses: Making sure your payroll software focusses on the needs of small businesses will make your life easier (save you time, money and be easy to use).
- The payroll software includes a HRIS and time-off management: Go for a payroll software that doubles up as HRIS and time-off management software. This way all your team's pay, documents, employment, records, time off is in one place and always up to date.
- It provides fast and reliable customer support: Although most of the product will mostly be automated and self-serve, having good customer support available when you need it is key. This is because you’ll probably need to reach out right before payday - short SLAs for response times is what to look for here.
More about this topic:
About Onfolk
Onfolk is a payroll company software that offers HR software with payroll integrated to it in order to minimise the amount of admin involved with paying your team and managing their data.
Think effective payroll automation, allowing to run payroll in the UK in a matter of minutes. It is also an official HMRC payroll software, meaning all HMRC reporting is done automatically for you every month. If you’re familiar with Gusto in the US, Onfolk is exactly that for the UK.
Our customers’ favourite features include:
- 90% automated payroll every month
- Full GDPR compliance, with all employee and payroll data encrypted and securely stored in the cloud
- HRIS synced with payroll - specialised in small business payroll software
- Time off management and annual leave calculations included
- Automated onboarding and offboarding
- Pensions fully integrated with Nest, Smart Pensions and more
- Integrations with accounting softwares such as Xero and Quickbooks
- People insights, custom reports and org charts come built in
