Payroll for startups: A beginners guide
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How to get started with payroll
As a startup business founder, you’ll quickly find yourself juggling numerous tasks to get your business off the ground. If you’re not operating as a sole trader or self-employed, and you instead set up a limited company or partnership, one of the most pivotal tasks is to set up and manage your payroll and accounting processes.
Payroll is a crucial process within your many accounting responsibilities that ensures your employees – however many you employ – are paid accurately and on time. As soon as you make your first hire, there are important factors to consider about your duties as an employer, and payroll is arguably the most important.
This short and straightforward guide will walk you through the essentials of payroll management for startups, and how you can take advantage of automation solutions to make payroll easier to manage as your startup scales quickly.
The basics of payroll
Contrary to popular belief, payroll is about more than simply paying employees. It encompasses wage and salary calculations and deductions, paying appropriate taxes and mandatory employer contributions (pensions, National Insurance, etc.), maintaining accurate records, and ensuring compliance with UK employment laws and regulations.
For startups and new business entrepreneurs, getting payroll right from the beginning is vital. It helps you avoid costly mistakes and legal issues down the line but, fundamentally, ensures you can build your team with confidence, reassuring them that they are being paid accurately and legally.
One of the first decisions you’ll need to make as a business owner is whether to handle your payroll in-house or outsource your payroll to a specialist provider. Each option has its pros and cons.
In-House Payroll
Benefits
- You maintain direct control and oversight over payroll processes
- You can lower your outgoings by saving on accounting services
- You get immediate access to all your payroll data
Considerations
- Many new business owners make errors by failing to manage payroll correctly.
- It eats up at precious hours and resources that could be spent growing your company.
- It requires you to comply with and understand various UK laws and regulations.
Outsourced Payroll
Benefits
- A dedicated team handles all compliance and accurate accounting processes so you don’t have to worry.
- It saves you considerable time and effort managing payroll yourself, giving you room to focus on important business growth tasks.
- There is a lower risk of errors and financial penalties when entrusting specialists.
- Accountants will ensure your payroll is compliant in light of new UK legislation changes or updates.
Considerations
- There are ongoing fees to pay for accounting software and management.
- You have less direct control over the payroll process.
- You will still have to comply with several obligations and deadlines.
Many startup founders find that outsourcing is more convenient and effective as it allows them to dedicate more time towards scaling and growing their businesses while payroll is handled accurately and diligently by trusted professionals.
Essential payroll compliance for startups
Whether you decide to manage payroll in-house or outsource it, understanding the basics of compliance is vital. The key areas to be aware of include:
a) Tax obligations
- Using approved PAYE (Pay As You Earn) software to send HMRC real-time information. This is required if you are managing payroll in-house.
- Sending full payment submissions (HPS) informing HMRC of all payment information relating to each employee.
- Collecting and paying any income tax and National Insurance contributions.
- Submitting regular reports to HMRC monthly, quarterly, or annually.
b) Minimum wage requirements
- Ensuring all employees are paid at least the National Minimum Wage or National Living Wage, depending on their age and status.
c) Pension contributions
- Enrolling eligible employees into a workplace pension scheme under the Pensions Act.
- Making regular minimum employer pension contributions after employees pass probationary periods.
- Communicating changes to pension providers such as age, earnings, and when employees wish to increase their own contributions.
d) Ongoing record-keeping
- Maintaining accurate payroll records for at least three years.
- Keeping records of hours worked, wages paid, and deductions made for annual year-end accounts and tax return filings.
Setting up your payroll system
Whether you’re handling payroll in-house or outsourcing it to a third-party provider, your system needs to be fit for purpose.
- Obtain an employer PAYE reference number from HMRC
- Choose HMRC-approved payroll software
- Collect necessary information from employees such as P45 forms and tax codes
- Set up a payroll schedule (weekly, bi-weekly, or monthly)
- Establish a system for tracking employee hours, if applicable
The role of technology in payroll management
Nowadays, technology and automation play a vital role in streamlining payroll processes. Modern, HMRC-compliant payroll software can help you:
- Calculate wages and deductions with confidence
- Generate payslips and relevant forms easily
- Submit all required information to HMRC
- Track employee sickness, annual leave and benefits
- Ensure compliance with UK employment law
Common payroll mistakes for startups (and how to avoid them)
As a startup founder, it’s easy to make payroll mistakes especially if this is your first business endeavour.
It’s easy to misclassify employees as contractors – and vice versa – which can affect tax obligations and leave you with an unexpected tax bill. Deadlines are often missed, sometimes filings are incorrect and, depending on the severity, HMRC can be quite lenient and offer you the chance to rectify the issue. Some business owners fail to maintain accurate payroll records as well. All of these issues can compound and make the process stressful and difficult.
However, entrusting an accredited third-party company can alleviate most of these problems. If you are handling payroll in-house, however, it’s important to correctly classify workers, set up reminders for payroll deadlines, implement a robust record-keeping system, and use best-in-class payroll software to manage your outgoings.
The benefits of automating payroll processes
Automation has a vital part to play in helping startups overcome those initial payroll barriers and obstacles.
With the help of automation, startups can reduce the hours spent manually calculating obligations and entering data. Automated payroll software also ensures that the risk of human error is minimised significantly and reports are easier to generate.
Automated payroll processes may cause concern, but if solutions are fully managed by professionals, sensitive employee and business data can be safeguarded and changing regulations can be reflected to keep your business free of fines and penalties.
How Signable can support your payroll processes
While Signable is primarily known as a best-in-class eSignature solution, its flexible automation capabilities can indirectly support your payroll processes
You can take advantage of Signable to quickly and securely obtain electronic signatures on employment contracts, tax forms, and other mandatory employment paperwork to streamline your recruitment and onboarding processes.
If your startup is using timesheets, you can ensure accurate hour tracking with the help of digitised signatures. Not only that, but you can store important payroll and tax documents securely in a cloud-based repository, accessing them easily whenever they are needed.
By leveraging Signable’s many automation features, you can create a more efficient, paperless workflow that complements your payroll processes and helps ensure compliance. Try Signable for free and align your automation plans with your business growth strategy.
Dakota Murphey
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