What is payroll processing?
Payroll processing is a term that covers the administration of employee pay based on employee type, status, salary, wages, and deductions, additionally, it entails reporting to HMRC and paying employment taxes. These computations must be done in accordance with existing laws and in sufficient time to follow the organisation's pay schedule. Due to its numerous variable factors, including pay scales, employee classifications, promotions, and terminations, payroll processing can be difficult to handle. For the most effective error prevention, it is crucial to have checkpoints in place at the crucial stages of payroll processing.
It is your crucial duty as the owner of a small business to make sure that everyone in your employment gets paid fairly and on time. Employee trust and your organisation's reputation can both be harmed by even one error. Therefore, payroll processing is a pivitol duty that must be carried out correctly. According to research commissioned by Sage, 35% of UK employees would look for another job if their company paid them incorrectly even once. In addition, 51% said they would lose trust in their employer.
Payroll processing: The basics…
#1. Begin with pristine data
During onboarding, it's common to make mistakes like misclassifying employees, which can have an effect on their tax withholdings, health insurance, and retirement benefits. Before the initial payroll run, include a checkpoint here to ensure the employee classification is valid and for the employee to confirm their personal details and tax code are correct.
#2. Confirm the data on timesheets
You should have a system in place for your timesheets that looks for discrepancies with employee type, hours worked, and pay grade before beginning your payroll processing.
#3. Be aware of all payroll expenses
To detect irregularities during each pay period, you must be aware of the additional costs that each employee will impose on the company. Be sure to account for each employee's gross pay, benefits, withholdings for taxes and social security. The Statutory Sick Pay (SSP), Statutory Pay for Parents (Maternal/Paternal Leave), Tips, Bonuses, Pensions, and Suspensions as Applicable must also be taken into account.
#4. Create and hand out payslips
You must provide a payslip with the following information to each worker and employee:
- Pay in full
- Net compensation
- Time worked throughout that pay period.
- Your employee's National Insurance number, tax code, pay rate, and year-to-date earnings and deductions can all be found on their payslips.
If your payroll software provides this function, you might be able to create paystubs with it. If it doesn't, you can use an other piece of software. Paystubs can be sent electronically or printed.
#5. Pay bills and submit reports on schedule
You must pay HMRC the tax and NI balance shown on your Full Payment Submission (FPS) for the previous tax month, less any reductions shown on any Employer Payment Summary (EPS) you sent before the 19th of the current tax month. If you've paid any employees and fail to submit an FPS on time or do so late, HMRC will give you a notice for late filing. If you don't have a good excuse for being late, it may also impose a penalty. A calendar of important payroll dates, including bank holidays that affect closings, should be kept.
#6. Finish annual reports and other activities to get ready for the upcoming tax year
You must submit a report to HMRC regarding the prior tax year and get ready for the upcoming tax year. Payroll benefits and deductions for your employees must be included in an FPS in your annual report. You must oversee the payroll year-end process to get ready for the upcoming tax year: send your employees a P60, update employee payroll records from the final day of the tax year, and report employee expenses and benefits. Your policies must be explicit and well-documented so that anyone may adhere to them.
#7. Paying the national living wage
The National Minimum Wage and National Living Wage rates are regulated by law and are updated annually. The hourly wage to which all workers over the age of 23 are legally entitled is known as the National Living Wage. People who are under the age of 23 and between the ages of school leaving are covered by the National Minimum Wage.
#8. Comply with all applicable payroll laws and regulations
Payroll regulations and laws change frequently, making it difficult to stay up to date. The gender pay gap, the Cycle to Work Program, and real-time information are a few instances of how social factors can affect payroll law. Utilise tools like Gov.uk to better understand the implications of changes for payroll as they occur. You can further your knowledge by attending industry conferences, webinars, and payroll seminars.
#9. Use technology to make payroll processing simpler
Payroll processing has numerous moving elements, which is a lot to coordinate. Software programmes exist that can automate the process of manually submitting payroll data while also utilising intelligent data and connection. You can maintain compliance, generate reports fast, and eliminate errors by doing this. Using cloud payroll software helps streamline your payroll processing so you can concentrate on strategic ways to support the expansion of your company.
So, it is clear that your payroll system should enable you to keep up with changes and handle rapid growth. In order to stay up to date with the evolving workforce, cloud-based payroll solutions offer real-time reporting in addition to regular updates that include the most recent changes in legislation. Automation can be a way for your organisation to save time and operate an effective payroll system using HMRC-recognized payroll software or by outsourcing to a payroll company or provider. Want to compare prices of local independent payroll companies in your area? Simply fill out the form <<here>> and we'll show you local payroll companies for comparison - for free!
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