Payroll management: Best practices for SMEs

As a small or medium-sized enterprise (SME) owner, you’re likely juggling multiple responsibilities to keep your business running smoothly. From managing operations to driving growth, there’s no shortage of tasks on your plate. If you’re considering hiring new employees to support your business, payroll management is one area you simply can’t overlook.

Payroll is about more than just making sure your employees get paid accurately and on time. It’s a complex process that involves complying with HMRC regulations, submitting payroll returns promptly, calculating tax and National Insurance contributions, and safeguarding sensitive employee data. Missteps in any of these areas can lead to unhappy staff, financial penalties, or even legal trouble, which is why getting payroll right is critical for SMEs of all sizes.

To help you stay on top of payroll management, we’ve put together a guide to the best practices for SMEs. From understanding HMRC requirements to leveraging payroll software and exploring outsourcing options, we’ll cover everything you need to streamline your processes and ensure compliance with UK regulations. Let’s get started.

 

Understanding HMRC requirements

As an employer, you normally have to operate PAYE (pay while you earn) as part of your payroll, HMRC’s system for collecting income tax and national insurance from employees.

You must register for PAYE if, since the current tax year (since 6 April), an employee:

  • is paid £123 or more a week
  • gets expenses and company benefits
  • receives a pension
  • has had another job
  • receives jobseeker’s allowance, employment and support allowance or incapacity benefit.

If you don’t need to register for PAYE, you still need to keep payroll records.

When paying your employees through payroll, you also need to make deductions from their pay. You’ll then need to report those payments and deductions to HMRC on or before each payday and send your employees’ tax and national insurance contributions.

You need to pay what you owe by the 22nd of the month (or the 19th if paying by post). If not, you may face a financial penalty. However, if you usually pay less than £1,500 a month, you may be able to pay quarterly rather than monthly.

Accurate and timely filing

Accurate record-keeping is crucial for strong payroll management. Without it, you may find that you’re making mistakes that will upset employees and frustrate HMRC. You also ensure that you have all the necessary documentation in case of an audit. So, make sure that you keep detailed records of all employee hours, wages, tax withholding and benefits.

You also need to ensure that you’re filing with HMRC on time. Accurate record-keeping will help with that, as it reduces the risk of you having to scramble for information that you’ve misplaced. But you should also stay on top of your payroll work: the earlier you start, the earlier you’ll finish and be able to check for mistakes, ultimately avoiding potential penalties.

Software and automation

Manual payroll can be time-consuming and prone to errors, especially as your SME grows. Investing in reliable payroll software can therefore be useful by automating entire processes for you, including calculations, tax deductions and reporting. Many platforms also integrate with HMRC systems, streamlining compliance with Real Time Information (RTI) submissions.

Automation also helps save considerable time by generating payslips, tracking employee leave and updating records instantly. Furthermore, many modern solutions include secure cloud storage, helping to ensure that employee data is kept safe and accessible.

Outsourcing to a payroll professional

For many SMEs, managing payroll in-house can quickly become overwhelming as more and more employees join the business. Outsourcing to a payroll expert may be another solution. Not only will you be able to focus on your business, but you’ll have the peace of mind knowing that your payroll is being handled by a professional who already has systems in place to handle the task accurately and efficiently.

By outsourcing, you reduce the risk of errors, avoid potential penalties and free up valuable time to focus on core business activities. Additionally, professionals stay updated on ever-changing tax and employment laws, so you’ll know that your SME is always compliant. It’s a seriously smart investment.

Looking for help with your payroll management? Get in touch with us. Let’s see what we can do to help.

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