Payroll is crucial to the smooth operation of any business, as it calculates how much each employee needs to be paid, how much tax and National Insurance should be deducted and reports the employees’ pay details to HMRC.
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Running your payroll can be a full-time job in itself, without all the other aspects of managing a business. While you can choose to do it yourself, there are many benefits to having an external accountant running it for you.
What does payroll cover?
There are many different aspects to payroll, starting with compiling your employees’ personal details, including their full name, address, NI number and salary. Then, you must keep track of the hours they work and their rate of pay to ensure their wages are correct.
If you have employees who are on a salary, rather than working for an hourly rate, this needs to be taken into account too. Keeping a record of whether each employee is on an hourly wage or a salary determines how you will calculate their pay.
A salary is based on a set amount of annual pay, which is split into 12 payments. A wage based on hours worked, rather than an annual fixed amount, is often calculated on a weekly basis. The hourly wage is multiplied by the hours worked to calculate their pay for the set period.
Any sick days must be logged, depending on your company’s policy on sick pay. You also need to keep track of overtime, or any late time-keeping, which may be logged by a clocking-in system if they are on an hourly rate.
What deductions are taken off employees’ wages?
The gross and net pay of each employee must be calculated and detailed on their payslip. The gross pay is what they earn in total and the net pay is how much they actually receive when statutory deductions such as tax and National Insurance have been taken off.
It is a legal requirement that every employee must pay tax and NI from their gross pay. The amount can vary, depending on how much the individual worker has earned and their circumstances, determined by their tax code.
There may be other deductions, such as a company pension scheme, to take into account. The employer is responsible for ensuring the correct amount is deducted in payroll and the relevant tax paid to HMRC each month.
As well as deductions, there may be additional payments if your employees receive commission or tips on top of their regular wage.
How can accountants help your business’s payroll?
As well as taking over the complex task of calculating and paying wages, accountants can build relations with HMRC and pension companies, taking the strain off the employer.
Two or three days before payroll is due to be submitted, the employer tells their accountant the relevant information for the month, including how much the employees’ rate of pay is, either as an hourly rate or as a monthly salary. The accountant will calculate and update the amount each employee is to receive.
They will also add any new staff members to the payroll, send out any pension letters that need to be delivered and determine whether any further employees need to be enrolled in the pension scheme. The accountant will send the employer a draft of the payroll before it’s submitted. It will show the amount of tax and NI to be paid to HMRC, the net amount being paid to each employee and the amount being paid to the pension scheme. At this point, there will be a chance to discuss any changes that may be required.
On pay day, the accountant will make the necessary submissions to HMRC and the pension scheme, and will send out the payslips, either directly to staff members, or to the employer to distribute. Following the accountant’s instructions, the employer will arrange for the wages to be paid.
As well as the regular day-to-day tasks, the accountant will also send out annual P60s and draft P11D returns for HMRC for any employee who has received benefits or expenses.
Can an accountant save you time?
Managing your own payroll can be very time-consuming. On an average month, based on a company with 200 employees, 40 of whom are salaried, calculating wages, salaries and deductions, even with the aid of a good software package, can take a manager up to 16 hours.
For a task that is described as “exhausting”: without interruptions or breaks, it is estimated the task could be done in 12 hours, but in the workplace, this is never going to happen. There will always be interruptions and it isn’t healthy to work for two full days without a break.
Payroll becomes increasingly complex as companies grow, with multiple locations, employees spanning across numerous centres and others dividing their time between several sites. The payroll team will spend increasing amounts of time handling information and making corrections, as it’s likely mistakes will be made due to the complex nature of the data.
An external accountant can save time and the hassle of dealing with payroll internally. It can also help to prevent a financial penalty for late payments to HMRC