Putting aside the various legal issues associated with taking on staff, such as contracts of employment, sick pay, and holiday entitlement and so on, let’s take a whistle stop tour of your responsibilities as an employer ….
What information do you need to give your staff when you pay them?
When you pay an employee, as well as reporting the information to HMRC (see below), you have a legal requirement to give the employee a record of the amount paid and any deductions made. This is usually done through issuing a payslip which will show the gross amount paid, the employee’s national insurance deductions, tax deducted and any other deductions made which should have been explained to the employee at the beginning of the tax year or as you make the deduction.
By 31 May each year a P60 must be given to every employee working for you on the last day of that tax year; the tax year runs from 6 April to 5 April. The P60 shows the employee’s total gross pay and the total of the tax and NI deducted from this pay.
What information do you need to give to HMRC when you pay your staff?
In April 2013 the rules for operating payroll and reporting information to HMRC changed significantly with the introduction of Real Time Information (RTI). Under these new rules the disciplines surrounding the reporting of payroll data becomes much more rigid. As each payroll run occurs the payroll data must be submitted to HMRC; in real time. The reporting of new employees starting and employees leaving also falls under RTI reporting.
RTI applies to all employers regardless of size and number of employees. It also includes staff earning below the Lower Earnings Limit which is a new reporting requirement.
Even if you outsource your payroll you are still responsible for submitting the payroll data; so you need to ensure that your payroll provider is ready for RTI and has RTI complaint software.
Each pay period you report your payroll information by submitting a Full Payment Submissions (FPS) and Employer Payment Summaries (EPS). These reports are standard in all reputable payroll software and once the payroll has been processed they are prepared and submitted generally by the click of a few buttons within the system.
At the end of the tax year you will need to submit a final Full Payment Submission (FPS) and/or Employer Payment Summary (EPS) for the pay period as normal and make some end of year declarations. RTI does however eliminate the need for P35s and P14s.
Penalties will be imposed if you submit the real time information late or do not submit it at all. From April 2014 the penalty for late submission starts at £100 a month.
What are your options for running a payroll?
There are two viable options for paying your staff – operate your own payroll or outsource it. Following the introduction of RTI, doing it manually is no longer a viable choice.
If you operate you own payroll system you will need to buy software, train someone to run the payroll, ensure that that they understand all of the payroll rules, make regular backups of the system and ensure you have a back up payroll administrator to cover for illness, holidays etc as your staff will not be happy if they do not get paid because of staff absences.
You could find a provider that will undertake the payroll operation for you (outsource it). This will of course incur a cost but that could well be cheaper than you having to maintain your own payroll system / package and employ your own staff to operate your payroll.
HMRC have some great suggestion when contemplating this route – read these at:
Where can I find more information?
Operating payroll can be complicated and there is much to know. HMRC provide comprehensive advice at:
Being an employer can be confusing and the administration is often cumbersome and time consuming. My advice is to always get advice from a reputable accountant or payroll provider who will be able to guide you through the minefield of payroll and make sure that you do not fall foul of any legislation that could incur a hefty fine.