Adding a New Employee to your Company Payroll? Detailed Explanation on How to do it.

Maintaining an accurate payroll system is important if you wish to keep an eye on your company’s finances. One of the things to keep in mind to achieve that is to add every new employee to your company payroll before paying them their first salary.

Adding a new employee to a company’s payroll involves collating information about the employee, registering the employee with HMRC, and many more. In this post, we will explore all you need to know about adding new employees to a company payroll including the steps involved.

What is Payroll?

Payroll could simply be put as a list of all the company’s employees and the wages or salaries to be paid to them weekly, biweekly, or monthly. It can also be referred to as a document that outlines the employees of a company and the amount they earn. In today’s world, the term payroll is now used more broadly to include management of employee payments, tax payments, insurance payment schemes, and many more.

The process of payroll includes the keeping of a company’s employee financial details, payment of national insurance, running and management of bonuses and benefits, calculating and estimating employee wages and deductions, etc. Whether a company has only one or two employees or it has many employees, it is important to run payroll and comply with the HMRC payroll reporting requirement.

How to Add a New Employee to Your Company Payroll

After setting up and registering your business with the appropriate authority, you’ll need to register yourself as an employer with the HMRC. You’ll be required to set up a payroll with them even if you’re the only director and employee at the moment.

As time goes on when a new employee joins your business, you’ll need to add them to the company payroll. Whether you’re recruiting one or many staff at a time, there are five steps to take to add new employees to the company’s payroll.

1. Ascertain if you’ll need to pay them through PAYE

First, you should determine if you should be paying the new employee through the PAYE system or not. Your company’s employees should be paid through PAYE if they earn up to 123 pounds per week. Even if they are seasonal workers, temporary workers, students, and part-time employees, the same rule applies.

2. Get the details of the new employee

As soon as you recruit a new employee, you will obtain some information from them so that it can be used to set up the tax return payment, payroll, insurance, and many more. Some of the information you will need includes the employee's full name, date of birth, full address, gender, when they joined the company, the date they left the former job, student loan status, national insurance number, tax code, tax paid to date for the current tax year, etc.

Most of this information can be obtained from employee P45 (a document presented to an employee upon leaving a job. It contains information about employee tax returns and payroll information). If the new employee had worked previously in a corporate organization, they are most likely going to have the P45 document. However, if they aren’t able to provide one, they will be required to fill out and complete the HMRC starter checklist.

In situations where your new employee has more than one P45, you will only use the most recent one while the others should be returned to the employee. Once you have all of the needed information about the employee, you can start working out their tax code and determine other things you need to do before paying them the first salary. You can do this using the HMRC online tool.

Also, you should keep all of this information in your company payroll system for the current tax year and the next three years.

3. Check out if the new employee has an outstanding student loan to pay

As an employer, you should find out if the new staff has an outstanding student loan to pay. And if they do, you must make student loan deductions from their wages or salaries before they are paid. You can determine if a new employee needs to pay some student loan by:

• Checking through their P45 to see the deductions that have been made previously and if the deductions should continue.
• Asking them if they are paying up a student or postgraduate loan.
• If HMRC sends form SL1 or form PGL 1, the new employee's income is beyond their earnings for their repayment plan.

Once you determine that they have a loan to pay, you should include this in their payroll. The payroll software will automatically set up and estimate their loan repayments, so you won’t need to calculate this yourself. In situations where the employee has finished their studies after 6th April, they won’t begin the loan repayment until the following tax year.

When you start paying the employee, you should forward all the loan deductions information to HMRC through the Full Payment Submission.

4. Include the new employee in your company payroll system

After obtaining all the necessary information, you can then include the new staff in the company payroll system. There are several types of payroll software. The way you would go about adding new employees to your company payroll software depends on the one you use.

Be that your company is a small, medium, or large business or you’re a limited company, partner, or corporation, there are many payroll software that can be used. Some of them include Sage, rippling, Xero, QuickBooks, FreeAgent, Moneysoft, BrightPay and many more.

On the other hand, if your company uses a service provider for payroll, then you would need to provide them with the necessary details of all new staff so they can add them to the company payroll.

5. Register the employee with HMRC

The last step is to register the new staff with the HMRC. You would achieve this by providing their information in the Full Payment Submission (FPS) whenever they are paid their first wages. You will be required to provide the following information about them.

• All the information gathered about the employee as explained in Step 2
• Employee tax code and starter declaration.
• Employee salary payment and all deductions made since they started working in the company. The deductions include student or postgraduate loans, income tax, pension, national insurance contribution, and so on.

It is essential to note that all employees should have their unique payroll ID. Even if a new employee has worked for your company before or they have more than one job currently, you must assign a payroll ID to them.

Some Additional Employee Benefits

Apart from going through payroll and settling the payment of wages or salaries. There are other benefits you’re expected to give to your employees as a business owner. These benefits sometimes could be dependent on the job position you have hired for. Some of the benefits include

• Overtime payment
• Holiday entitlement
• Travel allowance
• Bonuses
• Childcare
• Maternal payment and bonuses and many more.

So as a company and an employer, it is important to bear these employee benefits in mind while also preparing to add them to the payroll system.

What Does Running a Company Payroll Entails?

Managing a company payroll may seem like a seamless task, however, several things are involved in maintaining an accurate payroll system. Here are some of the responsibilities you would be expected to carry out if you are in charge of your company payroll system.

• Gathering information about new employees and adding it to the company’s payroll system.
• Enrolling all employees in the company’s pension scheme.
• Estimating net and gross pay of all staff
• Evaluating the statutory maternity, paternity, or sick pay that applies to an employee.
• Making accurate deductions from staff pay. These deductions could include student and postgraduate loans, tax returns, pensions, etc.
• Making payment of wages at a particular company’s agreed date and issuing pay slips.
• Making reports of pay and deduction to HMRC as necessary.
• Issuing the necessary PAYE forms
• Filing annual payment reports to the HMRC
• Keeping an up-to-date record of all payroll done within the last 3 years.
• Paying income taxes to the HMRC.

It is important to note that most of these tasks become easier to do if the company uses payroll software or a service provider for its payroll.

Types of Payroll System

There are three types of payroll systems each with its benefits:

1. Manual payroll system

The manual payroll system is the cheapest method though it could be time-consuming. With this method, you will have to manually handle all the payroll activities including estimating tax and other deductions. Apart from that you will need to use the HMRC tax calculators for PAYE tax and National Insurance Contributions. Using this method involves going through careful calculations and record keeping in order to maintain accuracy and compliance with laws. It is thus only suitable for companies with few numbers of employees and limited resources.

2. Payroll Service provider

Payroll service provider is another method you can use. The method involves using the service of experts for your company payroll. This could be a highly effective, less stressful, and less time-consuming method but it could be expensive.

Once you involve a payroll service provider or accountant, they handle all of your company payrolls from tax, deductions, wages, etc. It is therefore the responsibility of the expert to ensure that accuracy and compliance are maintained.

3. Payroll software

Payroll software is a method that could be used in place of the manual and outsourcing methods. They are not as expensive as outsourcing and they are less stressful and less time-consuming than the manual method. With payroll software, you can handle most payroll tasks from calculations to tax deductions, and record-keeping to automation. Most companies now use payroll software because of its efficiency and effectiveness. Thus, you can have absolute control over your company’s payroll while also ensuring compliance and accuracy.

Importance of Maintaining an Accurate Payroll System.

As a company, ensuring that all payroll tasks are done effectively is key. Here is the importance of having an accurate and successful payroll system within your company.

1. Keeps the Company’s Reputation Intact

To keep your company's reputation intact always, you must ensure that your payroll system is done accurately. Little mistakes in estimation or omission of tasks could affect the quality of your payroll. Because some payroll tasks involve highly sensitive information, they must be done accurately. Moreover, you are expected to report your payroll to HMRC. As such providing inaccurate information and details could hurt your company’s reputation.

2. Motivates employees

Employees are a key aspect of every business and could determine the extent to which a company succeeds. That being said, a company should do all it can to keep the morale, efficiency, and performance of employees at its best all the time.

A good way to keep almost every employee motivated to work and the company’s success is when they are paid on time and accurately. To achieve that, companies must ensure a successful payroll system all through the years. Once employees trust that their financial well-being will be taken care of, they ultimately put their best to work.

3. Keeps the Company in Compliance

Having an accurate payroll system also means that your company's payroll system is complying with the ever-changing payroll rules and legislation. As a company, it is therefore essential to take note of all regulations so as to keep your company in compliance all the time.

4. Helps maintain a good financial status

With an accurate payroll system, a company could maintain a great financial standing all through the years. When the proper deductions, tax payments, wages, and salary payments are done effectively, it becomes easier for a company to keep an eye on its financial standing. Having a disrupted payroll system on the other hand could have a negative effect on the company’s financial record.

Conclusion.

As a business owner, understanding how payroll works is important to your company's financial accountability. While it is necessary that you set up a payroll before paying wages as a new company, it is also crucial that you add new employees to your payroll system after hiring them. Have any questions on adding a new employee to your company payroll? Contact one of our experts here at Incorpuk now.