Many of our clients are smaller businesses who do not have in house HR or payroll departments. We have seen these businesses grow over the years. Some started as one-man bands and we were often asked the question whether, when the first employee was taken on, they needed to be put on the payroll. The answer is yes, if they are above the tax thresholds and and/or has more than one job, even if the person is not being paid a great deal or is perhaps part time.
It’s worth remembering that earnings, and therefore what is recorded on the payroll includes: basic pay, hourly pay, holiday pay, overtime, commission, notice pay and bonus, as well as parental pay and sick pay. Repayment of expenses incurred, or mileage are not treated earnings. All earnings are subject to tax and NI deductions when the threshold is reached, which is why a payroll is needed, even if thresholds aren’t met. One day they might be and HMRC wants the data.
So, what do you Need to Set up a Payroll?
You need to ask every new employee to complete a starter form so you can gather the required information to help you to decide whether you need a payroll. This form will tell you if this is the only employment they have or whether they have other work.
Importantly, if your employee says they have another job they must be put on a payroll even if their earnings are low because they must pay tax and NI contributions on all earnings over the threshold, even if the earnings are from more than one employer. If the employee feels they are being taxed when they shouldn’t be because their earnings are low, as often happens, they must speak to HMRC to have their tax code shared between their different jobs, so that they the right amount of tax during the year.
If the employee doesn’t have another job and earns below £118 per week there will be no deductions to be made and therefore a payroll is not needed. However, if you already have a payroll for other employees and take on someone who is earning below £118 per week, then they must go on the payroll. This is because once you have a payroll set up, every employee, regardless of earnings, must go on it.
Sometimes we hear of employees asking not to go on the payroll, usually because they don’t want deductions from their pay, because they don’t think they earn enough to pay tax and NI. However, HMRC makes it clear that it is the employer’s responsibility to make the correct deductions from their employees’ pay, not the other way around. And, of course, if you do not make the correct deductions, it is possible that HMRC will require you to pay the NI contributions you should have deducted.
Self-Employment and Auto Enrolment
If an employee, or someone who does work for you, provides you with an invoice for their work it doesn’t necessarily mean that they can be self-employed, and therefore, not on your payroll. Usually, if that person is working only for you, they are more likely to be an employee and that means they should go on your payroll. It is important to know, therefore, whether the work they do for you is classed employment or self-employment.
And, of course, you must set up and enrol new employees in an auto enrolment pension scheme within three months of their start date providing they meet the criteria.
Talk to us About Outsourcing Your Payroll
Payroll, whether you need one, and related topics like what is classed as employment and auto enrolment, can be confusing, especially for smaller businesses who tend not to employ specialists in this area.
That’s where we come in as outsourced payroll specialists. If you would like a quick, accurate and efficient payroll service, that takes the responsibility away from you, then contact us or call us on 0121 422 0550 for an initial chat.