First-Time Employer Payroll: Your Complete Step-by-Step Setup Guide
First-Time Employer Payroll: Your Complete Step-by-Step Setup Guide
Getting payroll right from day one is crucial for compliance, employee trust, and smooth operations. This guide walks first-time employers through every step—from HMRC registration to running your first pay run and establishing ongoing best practices.
1. Register with HMRC as an Employer
Before you can pay your first employee, you must register with HMRC at least five working days before the first payday.
- How to register: Sign in to your Government Gateway account or create one, then complete the ‘Employer’ section.
- What you’ll receive: A unique PAYE reference number and Accounts Office reference. Keep these safe—they identify you in all future communications.
2. Decide How to Run Payroll
Choose between in-house processing with payroll software or outsourcing to a provider or accountant.
In-House with Software
- Control & Transparency: Manage pay runs, reports, and records directly.
- Automation: Automatic tax and National Insurance calculation.
- Integration: Connect payroll to time tracking and expense management modules.
Outsourcing Options
- Expertise: Accountants handle compliance and reporting.
- Time Savings: Focus on your core business.
- Costs: Monthly fees vary; ensure they cover all statutory submissions.
Workmax’s cloud-based payroll platform supports HMRC-recognised RTI reporting, seamless integration with HR and time-tracking tools, and scalable pricing for growing businesses.
3. Maintain Accurate Records
Robust record keeping keeps you compliant and audit-ready. Key records include:
- Employee details: Name, National Insurance number, start date.
- Pay information: Gross pay, hours worked, bonuses.
- Deductions & contributions: Income tax, National Insurance, pension contributions, student loan deductions.
- Statutory payments: Sick pay, maternity/paternity pay.
- Expenses: Reimbursed travel, subsistence, equipment.
- Reports to HMRC: Full Payment Submission (FPS) and Employer Payment Summary (EPS).
4. Set Up Your First Employee
Gather essential documentation before adding an employee to your payroll system:
- P45 or New Starter Checklist: Verify previous earnings and tax code.
- Student Loan & Pension Info: Assess deductions and auto-enrolment status.
- Bank Details & Personal Info: Ensure accurate salary payments.
Enter these details into your payroll software, double-checking for typos and correct tax codes.
5. Prepare & Run Your First Pay Run
Follow these steps for a compliant first pay run:
- Calculate Gross Pay: Based on salary or hourly rate multiplied by pay period hours.
- Apply Deductions: Income tax, National Insurance, student loan, pension auto-enrolment.
- Employer Contributions: Employer NIC and pension contributions.
- Generate Payslips: Provide employees with a breakdown of earnings and deductions.
- Submit FPS: Report to HMRC on or before the pay date via your payroll software.
6. Manage Ongoing Payroll Processes
Once the first pay run is complete, establish a routine:
- Monthly/Quarterly EPS: Report reduced liabilities, statutory payments, and adjustments.
- Pay HMRC on Time: Use your PAYE reference to make electronic payments by the due date.
- Record Updates: Reflect new joiners, leavers, salary changes, and benefits in kind.
- Periodic Reviews: Check tax code notices, pension thresholds, and statutory rates.
7. Best Practices for Smooth Payroll
Adopt these best practices to streamline and future-proof your payroll:
- Use HMRC-recognised software with real-time (RTI) reporting.
- Maintain digital records and backups for easy retrieval and audit trails.
- Standardise a consistent pay frequency (weekly, biweekly, monthly).
- Leverage cloud-based automation to reduce manual errors and save time.
- Schedule regular software updates to stay compliant with legislative changes.
Conclusion
Setting up payroll as a first-time employer may seem complex, but breaking it down into clear steps—from HMRC registration to ongoing management—ensures compliance and peace of mind. With reliable tools and best practices in place, you can focus on growing your business and supporting your team.
