Set Up a Payroll System
Operating a franchise could mean you will need to hire staff. Setting up an efficient payroll system is essential to ensure you deduct the correct amount of income tax and National Insurance contributions from them. If you will be an employer for the first time, it’s a good idea to take a look at the information on the HMRC [www.hmrc.gov.uk/employers] website to give you an insight into the regulations you have to comply with.
There is also a an employer CD ROM that contains all the information you need to set-up your first payroll system. This can be ordered online from the HMRC. It is important to set-up your payroll systems correctly so take financial advice at every step of the process. The efficient operation of your small business depends on it. Call the New Employer Helpline for further advice on: 0845 60 70 143.
What is a Payroll?The accepted term for any payments you make to your employees in your small business is called payroll. This system is usually how your small business operates its PAYE [Pay As You Earn] system. Payroll systems also enables your small business to track any benefits paid to your employees and any additional deductions you make such as student loan repayments or the use of company transport.
How to Choose a Payroll SystemThe type of payroll system you use in your small business franchise will depend on how many employees you have, and how automated you want your payroll system to be. You have a number of options when setting up your first payroll system. These include:
Paper Based Manual SystemsFor very small businesses, paper-based manual system are ideal as they are relatively simple to use, but can be time consuming. You can set-up your own form to track the deductions you make from your employee’s salary, but it is more convenient to use for P11 that you will find in your new employers starter pack. Manual payroll system will also mean you have to perform the tax and National Insurance calculations to ensure you are paying your employees the right amount of money.
Outsourced Payroll ServicesMany small businesses with five or more employers often outsource their payroll service. You have to pay for this service to your small business, but the cost could be justified as you then have more time to develop other areas of your franchise. As with all services you buy for your business, look carefully at the contract you will sign. Ensure it provides your business with precisely the payroll services it is looking for.
Computerised Payroll SystemsPayroll services can be complex when you have many employees all with slightly different tax and deductions you have to make from their salaries. This is where a computerised system can save you masses of time. It is important that you use payroll software that meets the minimum requirements set out by the HMRC. This will avoid any problems if the HMRC query any of your financial records. You can read a list of approved payroll software packages on the HMRC website.
Note that if your small business will be employing more than 50 people, you must file what is called an Employer Annual Return. You do this by completing forms P14 and P35. If you have less than 50 employees you don’t have to file these forms until 2010, but starting to do this now could mean you receive a tax-free payment.
Your Payroll ChecklistTo run your payroll system effectively use the checklist below:
- Record Keeping
The payroll system that you operate in your small business can be efficient if you closely track the other financial components of your business. For payroll this mean any expenses or benefits your employees receive. If you have these figures, your payroll system will be efficient and easy to operate.
- Help and Advice
Setting up a payroll service for the first time can be a daunting prospect. Take financial advice from your accountant and also call the HMRC with any queries you have. It is imperative that your payroll services are set-up correctly as your employees will rely on your to deduct the correct amount of tax, National Insurance and taxable benefits so their tax affairs are accurate.
- Outsourcing Your Payroll
Ensure the payroll service you want to use understand your small business and can provide all the services you require. Also check that the software they use is compliant with HMRC regulations.
- Test Your Payroll Software
Before you begin to use the payroll software you have chosen for your small business, it’s a good idea to test its systems with some dummy data. Create a fictitious employee and practice using your software with their tax and National Insurance information.