Running payroll can be a complex process. So, seeking advice was a good call if you’re about to do this for the first time. After all, you don’t want to make a miscalculation that could prove to be costly.
The good news is that it’s possible to learn how to do payroll manually - the right way. And if you run a small business that intends to keep the headcount low, running payroll is a valuable skill to learn.
The 6 Steps to Running Payroll
It's time to focus as you learn how to do payroll, including making deductions and reporting to HMRC. Here are the six steps you need to pay your staff.
1. Calculate Gross Employee Pay
Take each gross salary and divide it by the number of times you expect to run payroll throughout the year. That will give you the gross amount you’ll owe your staff for that period. If you’re like most businesses, you’ll pay them monthly. To work out your monthly payroll run, divide the salary by 12. So far, so good.
2. Subtract Pre-Tax Deductions
The payments you’ll need to deduct from the gross amount are:
- National insurance
- Pension contributions.
These are divided into two amounts: Your company’s contribution towards the employee’s own pension scheme and the amount deducted from their final pay. - Student loan repayments (If applicable)
The amount will be determined by the employee’s earnings.
3. Remove PAYE
Next, you’ll need to determine the income tax amount to deduct from gross pay. The salary dictates the income tax bracket, so you’ll need to know the various brackets you’re dealing with.
4. Subtract Post-Tax Deductions
This is where you deduct such tax-free items as child support payments.
5. Pay Your Staff
Now everything that should have been deducted has been removed from your staff’s gross salary, it’s time to pay them the balance. Make sure you’ve recorded all deductions, as you’ll need to include this information in a report to HMRC.
6. Send Reports to Your Staff and HMRC
You’re responsible for providing each employee with a payslip at the end of the month, showing their gross pay, any deductions made, and the final amount. Most online payroll software companies will generate payslips for you automatically - more about that in a moment.
You’ll also have to inform HMRC about the payments made to your employees, including deductions and taxes. This is called Real Time Information (RTO). There are two parts to this:
- Full Payment Submission (FPS)
- Employer Payment Submission (EPS)
You’ll only need to send this if your employer is required to submit certain information. You can see a list of EPS requirements on the HMRC website.
An Alternative (and Easier) Way to Run Payroll
So yes, you can learn how to run payroll yourself. But there’s no way around it - even with a small business, it can be a challenge. Gathering your employees' information, working out their pay, etc. takes time and effort. And no matter how many times you check and recheck, mistakes are made.
Fortunately, there’s another solution. Payroll management software can unburden you from such laborious tasks as generating payslips and synchronising unpaid leave.
Onfolk is more than just a payroll provider, as it also includes some key HR features, such as onboarding employees, storing employee data, and the ability to access analytics and reporting.
You can see a demo of Onfolk today. See how it performs the payroll and HR tasks you would otherwise have to do yourself or pay your team to do. Click here now to see Onfolk’s HR payroll system in action.
Running payroll can be a complex process. So, seeking advice was a good call if you’re about to do this for the first time. After all, you don’t want to make a miscalculation that could prove to be costly.
The good news is that it’s possible to learn how to do payroll manually - the right way. And if you run a small business that intends to keep the headcount low, running payroll is a valuable skill to learn.
The 6 Steps to Running Payroll
It's time to focus as you learn how to do payroll, including making deductions and reporting to HMRC. Here are the six steps you need to pay your staff.
1. Calculate Gross Employee Pay
Take each gross salary and divide it by the number of times you expect to run payroll throughout the year. That will give you the gross amount you’ll owe your staff for that period. If you’re like most businesses, you’ll pay them monthly. To work out your monthly payroll run, divide the salary by 12. So far, so good.
2. Subtract Pre-Tax Deductions
The payments you’ll need to deduct from the gross amount are:
- National insurance
- Pension contributions.
These are divided into two amounts: Your company’s contribution towards the employee’s own pension scheme and the amount deducted from their final pay. - Student loan repayments (If applicable)
The amount will be determined by the employee’s earnings.
3. Remove PAYE
Next, you’ll need to determine the income tax amount to deduct from gross pay. The salary dictates the income tax bracket, so you’ll need to know the various brackets you’re dealing with.
4. Subtract Post-Tax Deductions
This is where you deduct such tax-free items as child support payments.
5. Pay Your Staff
Now everything that should have been deducted has been removed from your staff’s gross salary, it’s time to pay them the balance. Make sure you’ve recorded all deductions, as you’ll need to include this information in a report to HMRC.
6. Send Reports to Your Staff and HMRC
You’re responsible for providing each employee with a payslip at the end of the month, showing their gross pay, any deductions made, and the final amount. Most online payroll software companies will generate payslips for you automatically - more about that in a moment.
You’ll also have to inform HMRC about the payments made to your employees, including deductions and taxes. This is called Real Time Information (RTO). There are two parts to this:
- Full Payment Submission (FPS)
- Employer Payment Submission (EPS)
You’ll only need to send this if your employer is required to submit certain information. You can see a list of EPS requirements on the HMRC website.
An Alternative (and Easier) Way to Run Payroll
So yes, you can learn how to run payroll yourself. But there’s no way around it - even with a small business, it can be a challenge. Gathering your employees' information, working out their pay, etc. takes time and effort. And no matter how many times you check and recheck, mistakes are made.
Fortunately, there’s another solution. Payroll management software can unburden you from such laborious tasks as generating payslips and synchronising unpaid leave.
Onfolk is more than just a payroll provider, as it also includes some key HR features, such as onboarding employees, storing employee data, and the ability to access analytics and reporting.
You can see a demo of Onfolk today. See how it performs the payroll and HR tasks you would otherwise have to do yourself or pay your team to do. Click here now to see Onfolk’s HR payroll system in action.
