What does running payroll involve?
Getting set up to run payroll is relatively straight forward but does involve a commitment to submit payroll every month for as long as your PAYE account is active. The steps to get setup are discussed in another article. They essentially involve registering your organisation with a government gateway account and waiting for the confirmation activation letter, and then using your PAYE details in a payroll software, like ShiftAI's Payroll & HR product. Once you've entered all your details, and added the details of the people you are paying, you will be able to run payroll. Once payroll is run, you will need to pay your employees from your company bank account. This is usually done via BACs or through a bank transfer to your individual employees. Finally, the PAYE bill (taxes and national insurance contributions) will be due on the PAYE account. You will need to log into your government gateway account and then pay the outstanding balance. Finally, there will be an accounting journal entry for your accounts which will enable you to record the payment in your books.
How long does that all take to do?
The answer is that usually fewer than 10 minutes per month. That's because with software automation, the reporting, the payment templates and paye bill payment can be automated with several clicks.
What if I don't understand what to do?
In rare cases there might be an employee that you don't understand how to pay. For example, perhaps he or she earned a bonus, or changed tax codes or needs to get backpay.
What if I don't understand accounting?
Luckily, the automatic journals that are created from the payroll software enables the account entries to be automatically posted using the accountancy integration in ShiftAI.
What will the payroll bureau do for me?
A payroll bureau is a great solution if you want your employees paid and you want a bill at the end of the month. Payroll bureau's are relatively inexpensive, charging from around £25+ vat per month, so tends to be a fraction of the overall salary bill you are paying.
In addition, you will have the comfort of being able to communicate with a person who can verify the amounts you have to pay to each employee, and send you an excel summary of the payments. They may also offer accounting expertise and be able to answer questions on issues such as redundancy payments, payments in lieu, salary sacrifice and childcare tax credits. Topics, which you may not care to read about yourself hence prefer someone who has done the reading to be able to advise you.
What are the alternatives?
There are only two ways to pay your employees. Either you pay them directly or you pay another company who then pays your employees and sends you a total bill.
Pay employees directly and report it using payroll software
You can use payroll software which you can choose from HMRC's approved list here. Whilst we would prefer you to use our payroll software, the point of our article is to inform. Once you report the payroll, you simply pay your employees as you would any other entity that your company pays from your company account.
Pay through umbrella organisation
For example, if you are using an umbrella organisation, which is when the employee is hired by another entity and that entity charges you the full cost with a single invoice, then you would pay that entity and that entity would pay your employees and relevant PAYE and NIC due.
How many payments does my company need to make?
If you are paying 5 employees, you may need to make 5 payments to your employees for their net salaries, and then 1 payment to HMRC for the PAYE contribution and 1 payment to your pension provider if the employees get pensions. The formula is generally 'number of employees' + 2 = total payments.
When using an outside firm, such as an umbrella organisation, the setup will be whatever has been agreed. You might pay the umbrella organisation one invoice, which includes their fee, the taxes and contributions due and the employees salaries, or you may pay your employees' net salaries and pay the payroll bureau the fees and contributions. So the number of payments is variable and depends on the agreement that you have.
What about remote employees?
A permutation of the umbrella setup is a solution that a new crop of remote first companies are using such as Remote and Deel. These companies let you hire people overseas, acting very much like an umbrella organisation, as the employee is hired by their legal entity, even though the person works for your company. When it comes to paying your employee, you pay Deel or Remote, and they pay your employees, the social security contributions and taxes due and take a nice little fee for their trouble, which ranges from $500 upwards per month. However, if you are paying an experience React Engineer $120K a year, then the $500 is not much as a fraction of the employment cost.
In short, the main difference of using a payroll bureau vs running payroll yourself is the ability to ask questions and have these answered. When using a payroll software such as ShiftAI's software is that you maintain control of the entire process, and when on the premium plans can ask for questions to the support team who will answer you very quickly. There is an ongoing responsibility once you are a PAYE registered organisation and hence that involves monthly reporting for the duration your company is on the scheme.