Setting up payroll for UK employees can be a complex process, especially for international businesses unfamiliar with the UK’s regulations and requirements.
However, with the right guidance and preparation, you can ensure an organised and compliant payroll setup.
Register as an employer with HMRC
The first step in setting up payroll in the UK is to register as an employer with HM Revenue & Customs (HMRC).
This process is straightforward and can be completed online. You must register before your first payday, and it can take up to five days to receive your employer’s Pay As You Earn (PAYE) reference number.
Get employee information
To process payroll accurately, you will need detailed information about your employees.
This includes their full name, address, date of birth, National Insurance number, and tax code.
Ensuring that all this information is correct and up to date is crucial for compliance and accurate payroll processing.
Choose the right payroll software
Payroll software should be HMRC-approved and capable of handling all aspects of payroll, including calculations, deductions, and submissions.
Look for features such as automated tax calculations, employee self-service portals, and integration with other HR systems.
Set up and run payroll
Once you have your payroll software in place, you need to set up payroll for each employee.
This involves entering their personal and financial details into the system.
You will also need to decide on the frequency of payroll runs (e.g., weekly, bi-weekly, or monthly) and set up direct deposit details if applicable.
Calculate PAYE and National Insurance contributions
Your payroll software will help calculate PAYE tax and National Insurance contributions for each employee.
These calculations must be accurate to avoid penalties and ensure compliance.
The software will also calculate any other deductions, such as pension contributions or student loan repayments.
Submit payroll information to HMRC
Under the UK’s Real Time Information (RTI) system, you must submit payroll information to HMRC each time you pay your employees.
This submission includes details of all payments and deductions made. Each submission should be accurate and made on time.
Provide payslips to employees
It is a legal requirement to provide employees with a payslip on or before their payday. Payslips should include details of gross pay, deductions, and net pay.
Your payroll software can generate these payslips, which can be distributed electronically or in paper format.
Stay compliant
Payroll setup is not a one-time task. You must stay compliant with ongoing responsibilities, including submitting monthly Employer Payment Summaries (EPS) to HMRC, keeping accurate records, and making timely payments of PAYE and National Insurance contributions.
Best practices for setting up payroll
Some of the best practices for setting up payroll in the UK as an international business include:
- Keeping up to date with changes in payroll legislation and HMRC guidelines.
- Conducting regular audits of your payroll processes and records to identify and rectify any errors.
- Training your payroll staff on the latest regulations and software updates to maintain accuracy.
If your business is looking to expand into the UK and needs assistance with any aspect of payroll, our firm is here to help. We specialise in helping international businesses manage payroll for their UK employees, offering expert guidance and advice.
Contact us today to learn how we can assist you in setting up and managing your payroll.