For a business to run smoothly, the payroll process must be streamlined and error-free. It is easy to streamline and optimize your payroll and other back-office processes within your SMB. Did you know that this can improve your cash flow?
Although payroll involves money paid out by an organization, it is viewed as distinct from accounts payable because it involves both expenses and liabilities.
Although payroll is separate from accounts payable, you can use payroll to boost your cash flow just as you can by streamlining your accounts payable process. If you need further advice from a trusted accountant in the UK on improving your payroll process, have a chat with us. Otherwise, do read on for our top 5 tips to handle your business’s payroll accurately and efficiently.
Be Aware of The Payroll Processing Procedures in the United Kingdom
As of 31 January 2020, the United Kingdom (UK) has finally departed from the European Union (EU) after three years of negotiation.The UK is still considered an international business powerhouse, although the long-term effects of Brexit on the UK's economic progress remains to be seen. However, those who are looking to invest resources in UK operations should first understand nuances of the UK payroll process and the UK payroll basics.
PAYE and Payroll
Even if you only have one staff member, you are still required to register as an employer to set up your Pay As You Earn (PAYE) scheme. PAYE is HM Revenue & Customs (HMRC)’s method of collecting National Insurance and income tax from employees at source.
You can apply for yours online through www.gov.uk, then wait up to 5 working days for your employer PAYE reference number. Once you have successfully registered as an employer, you can use payroll software to set up or run payroll yourself, or outsource this task to a payroll provider, but you will still be liable for collecting and maintaining employee records.
The United Kingdom’s Minimum Wage
Under the National Minimum Wage and the Living Wage, workers in the UK are entitled to a minimum wage.
As of April 2021, the Living Wage of £8.72 is applicable to all workers aged 23 and over. While the National Minimum Wage is calculated at an hourly rate, it is applicable to all your workers even for those who are not paid by the hour.
In general, the working hours in the UK are from 9:00 am-5:00 pm, depending on the job nature. A typical work day is usually eight hours long.
UK’s working time directive mandates that workers cannot work over 48 hours in a week on average, measured over a 17-week period. Your employees can opt out of a 48-hour week voluntarily.
Pay Slips Should Be Issued to All Employees
Most workers in the UK are paid on a monthly basis, and this amount is made directly to their bank account. Under the UK law, you are required to issue a payslip to your employees with each payment. Bonus schemes and performance payments are left to your discretion.
Depending on wages, individual income tax rates vary from 0 to 45%. Every worker has a personal allowance of up to £12,500 of income, which is tax free. After the first £12,500, income is taxed at higher amounts depending on salary.
|Between £12,501 and £50,000||20%|
|Between £50,001 and £150,000||40%|
Scotland has different tax bands compared to the rest of the UK. Depending on where you are located in the UK, the tax rate for your employee may differ. It’s a wise idea to consult with a professional employer organization in the UK to learn these differences properly and not make a mistake when taxing employees.
Leave Considerations, Including Sick Pay, Maternity Pay & Paternity Pay
Nearly all workers are eligible for 5.6 weeks of paid annual leave or statutory leave entitlement, with those working typical 5-day weeks entitled to at least 28 days of paid annual leave in a year. Your part-time staff will be entitled to at least 5.6 weeks of paid annual leave calculated on a pro-rated basis.
Bank holidays need not be given as paid leave, with many employers opting to include bank holidays into a worker’s statutory annual leave. Under UK labour laws, a Statutory Sick Pay (SSP) is stipulated, with £94.25 per week up to 28 weeks.
Workers in the UK are eligible for up to 52 weeks of maternity leave, with the first 26 weeks being known as Ordinary Maternity Leave, while the last 26 weeks are considered Additional Maternity Leave. The same goes for adoption leave.
Workers who are eligible for maternity or adoption pay can receive up to 39 weeks of pay at 90% of their average weekly income for the first six weeks, before tax. The remaining 33 weeks will see an adjustment to £148.68, or 90% of their average weekly income, depending on which is lower.
As for paternity leave, workers can enjoy up to two consecutive weeks. Those who are eligible can receive £148.68, or 90% of their average weekly income before tax, depending on which is lower.
Statutory payments including statutory sick pay, statutory maternity pay, statutory adoption pay, statutory paternity pay, are processed through payroll.
As an employer, you can get reimbursed for these payments, depending on the amount of National Insurance paid in a year. You can then recover the appropriate amount by adjusting your monthly payroll tax payment to HMRC.
Set Up a Payroll Calendar And Stick With It
A payroll calendar is one that allows you to determine when you have to collect your employees’ timesheets and process payroll. Payroll calendars are based on the frequency of payment, direct deposit processing times, as well as bank holidays.
Setting up a payroll calendar and sticking with it can enable your employees to understand when they will receive their salary. Moreover, your payroll employee can also take reference to this payroll calendar to help with the execution of payroll tasks and planning. Make your own payroll calendar by choosing from the variety of available templates online, build from scratch with a spreadsheet or use an Office Suite program.
Before you create your own payroll calendar, here are some tips you should take note of:
- Base your payroll calendar off a regular calendar as a guide for certain intervals in the year that you may need more time for payroll processing
- Highlight important dates using colours. These can include early time card deadlines as a result of a bank holiday
- Disseminate a copy of the payroll calendar to your managers and supervisors so they can distribute to their respective staff
In addition, your payroll calendar should show all fiscal year pay dates for easy payment processing and reduce your employee’s confusion on when they will get their wages. After you have made your calendar template, don’t forget to save it in your hard disk for updating when there are changes.
Jot Down Your Payroll Processing Procedures
Documenting your payroll process is crucial to managing payroll procedures. When you clearly report every step of the payroll processing procedure, you can then effortlessly analyse, audit and identify weak areas in the process. Once you have figured out a payroll process that works best for your company, record the steps and disseminate it to your payroll employees to ensure that they are well aware of their respective roles in the procedure.
Upkeep a standard operating procedure for your payroll processing, jotting down all the steps in payroll processing, including the reporting and check handling procedures. It will also be useful for you to include instructions on manual ways to process payroll in case of emergencies.
Automate Your Payroll With Modern Technology
Modern technology can be helpful when it comes to automating your payroll processes. With a Variety of payroll management software available in the market, you can choose one that is most ideal to help you optimise your payroll functions.
Needless to say, processing payroll is a laborious process. When this function is carried out manually, it is prone to human errors and can possibly lead to severe penalties. However, investing in a payroll software can help you automate the entire payroll process. These software can even factor in tax calculations, generate employees’ payslips, adhere to local legislation and provide you with up-to-date information for end-of-year tax returns. Remember to streamline your payroll management process by using the latest software for higher accuracy.
Outsource Your Payroll
Of all the payroll tips for small business, this is one of the most useful ones.
Running your own business is certainly a feat — it is always challenging to handle everything from marketing to payroll management. However, you don’t have to struggle with everything on your own!
Best of all, managing payroll costs does not have to burn a hole in your pocket. Consider outsourcing to payroll service providers like Osome, who will take care of all your payroll needs. Simply focus on growing your business, and leave the rest to us. Let our accounting experts in the UK handle your paperwork woes from payroll, invoices, reports, and taxes. We even have accountants who know e-commerce businesses. Chat with us today!