Topics we'll be covering in our guide
Managing payroll can be a complex, time-consuming and error-prone activity. If you’re an SMB, this can become even more challenging. You may not have the in-house expertise to handle the responsibility.
If the search that landed you here was something like, ‘how to manage payroll for a small business’, then you’ve come to the right place.
At Access PeopleHR, we help many SMBs and microbusinesses overcome their payroll challenges. You may choose to adopt payroll software or utilise a payroll outsourcing service.
Whichever you decide works best for you, you can't overlook payroll.
In this article, we’ll provide a simple, no-nonsense guide to managing your payroll. After reading, you should feel confident enough to take the next steps on your journey. Let’s begin.
Can I do my own payroll for my small business?
You're comfortable with numbers; you have a good understanding of payroll processes. You may be thinking, 'Can I do my own payroll for my small business?' The answer to this question is a resounding "yes."
In fact, many small businesses are already managing their own payroll. But, to manage payroll effectively, you need the right knowledge, resources, and expertise. Some employees managing payroll in-house may not even have a full grasp of what payroll software is and its strengths. And while you may be managing payroll at the moment, you may find the need for extra support as your business grows.
As a business owner, you should expect the demands that come with business expansion. Consider whether you have the capacity to continue managing payroll on your own.
If you are a microbusiness with fewer than 10 employees, you could utilise HMRC’s free basic PAYE Tools. But do be mindful that these tools are very basic. They're only recommended for businesses who are starting out.
If you’re looking to manage your own payroll, you may be interested in our article on How to Do Payroll Yourself Using Software.
5 tips on managing payroll for small to medium sized businesses
Understanding how to manage payroll for a small business is crucial. It helps maintain employee satisfaction and avoids potential legal issues. In this section, we’ll offer some of our top tips for SMBs on how to manage payroll effectively.
By following these steps, you can save time, reduce stress and ensure accuracy.
Let’s get started.
1. Get the basics right
Let’s start with the basics. By getting this right, you can avoid errors and ensure your employees get paid correctly. You will also maintain a healthy financial foundation.
Here are the essential components you should address:
- Payment processing. This begins with calculating your employees’ wages or salaries. This calculation should include any overtime, allowances and added payments.
- Payslip provision. Providing your employees with detailed payslips is crucial for transparency and compliance. Payslips should include gross pay, statutory deductions, net pay, and other relevant information. This could include leave balances or overtime hours.
- Deduction accuracy. Accurate deduction calculations are also crucial for compliance. Deductions may include income tax withholdings, health insurance and other authorised deductions.
- Record keeping. Maintaining meticulous payroll records is critical for SMBs. These records should contain detailed information about each employee. This will serve as a valuable resource during tax audits.
With the basics handled, you can establish a strong foundation for payroll management.
2. Regularly update employee records
By law, you must keep employee records for a certain period of time. This applies to current and ex-employees, as well as applicants and contractors.
You can find out more about how long you should keep employee records for in our detailed article.
To summarise, you should keep:
- Former employee records on file for six years after they have left.
- Hiring and applicant records for at least 6 months*.
- PAYE, maternity pay or Statutory Mandatory Pay (SMP) for three years.
It can be difficult to maintain employee records. That’s why many businesses utilise a cloud-based system which keeps records safe.
*If you want to keep your applicant records for longer, you will need to seek consent from the applicant.
3. Understand payroll compliance
One of the key aspects of how to manage payroll for a small business is ensuring compliance. Failing to meet these requirements could result in fines, penalties and legal consequences.
As an SMB, you should use the GOV.UK website to stay informed of any changing laws and legislation. The GOV.UK website serves as a valuable resource for information on compliance. Visit the link for further information.
Here are some key points to consider:
- Stay up to date. Payroll regulations can undergo frequent updates and changes. You should actively track and stay informed on these changes to ensure compliance.
- Compliance requirements. This may vary according to the industry in which you operate. You should know and understand these specific compliance requirements.
- Government resources. As mentioned, the GOV.UK website offers lots of information on payroll compliance. It covers topics like registering, tax obligations, statutory benefits, employee rights and more.
Remaining compliant will help to avoid costly penalties and boost your reputation. This can improve recruitment and retention efforts.
4. Report to HMRC
You are obligated to report to HMRC. You must provide HMRC with monthly RTI (Real Time Information) updates. For further information, head over to the GOV.UK website, but to summarise:
Employers must submit the following information to HMRC:
- Employer information
- Employee information
- Pay and deductions
- Employee pay information
- Late reporting reason
- National insurance
- New employee information
- When an employee leaves
- Workplace pensions
- End-of-year final reports
Note: the time/frequency at which you must submit the above information will vary. Visit the link for further information.
5. Implement payroll software
The last tip we can give you is to install payroll software. For many SMBs, outsourcing to a payroll bureau isn’t financially achievable.
With software, you can maintain control over your payroll processes whilst reducing admin. What’s more, payroll software can help reduce errors, maintaining compliance.
There are many payroll software options out there. We recommend looking for one that provides the following features:
- Simple, intuitive interface
- Built-in automation tools (for example, automated links to HMRC and pension providers)
- Full visibility
- The ability to complete payroll wherever you are (ideal for remote/dispersed teams)
- Features to reduce the need for email chains (that can easily get lost)
Learning how to do payroll for a small business is a valuable skill that can save you time and money.
Hopefully these five tips will help you understand your top considerations.
What payroll options are available for SMBs?
As an SMB, you have different options when it comes to managing payroll. What you choose will depend on a variety of factors. These include your business size, growth goals and budget.
The common options for SMBs are:
- Traditional payroll processing. This refers to the manual method of managing employees’ payroll. It will usually involve a pen, paper and spreadsheets. All responsibilities related to timekeeping, maintaining employee information and calculations remain. But the process is more laboursome and error prone – particularly if you have 20 or more employees. This is the best solution for microbusinesses of 10 employees or less.
- Payroll software. Payroll software is a great option if you want to keep full control over your payroll but reduce admin. Modern payroll software is accessible, fast and ensures compliance. It can also be cost-effective, especially if you consider the time-saving benefits.
- Payroll outsourcing. This will involve you handing over payroll-related tasks to a third-party provider. This allows you to offload the responsibilities associated with payroll. Payroll outsourcing has many benefits, it is ideal for those that have outgrown the capacity to handle payroll internally. It's also good for those who may not be ready to hire staff dedicated to payroll management.
The question, 'Can I do my own payroll for my small business?' often arises when business owners seek to minimise costs. While it's possible, consider the time commitment and potential risks we've identified.
If you’re unsure on your options, feel free to speak to one of our experts here at Access PeopleHR. We’re always happy to offer our guidance and support. Get in touch.
How to integrate payroll to your HR system
Learning how to manage payroll for a small business can be a daunting task. But with the right tools and knowledge, it can become manageable. In fact, it becomes an essential aspect of running a successful company.
When introducing any new software into your business, integration is key. The last thing you want is different tools that don't communicate with each other. This will overcomplicate the very thing you’re hoping to simplify!
When researching payroll software, make sure it integrates into your existing HR system. Integrations ensure a smooth data transfer. They also enable the automation of various tasks, such as automatic pension enrolment.
Next Steps
Learning how to manage payroll for a small business is crucial. When you start a business, it can be easy to get carried away with the ‘bigger picture’. But following compliance and paying your staff correctly can’t be overlooked.
What may begin as a manageable task can quickly become a laboursome burden. Even more as your business grows.
With that in mind, we hope the points made in this article have been useful.
To summarise:
- Get the basics right. Keep your files in check. Report to the HMRC. Understand compliance and, if necessary, consider payroll software.
- SMBs may choose traditional methods, payroll software or a payroll outsourcing bureau. Consider your needs and budget before making a decision.
- Ensure your payroll platform integrates with your existing business software tools.
- If you're willing to invest time in learning payroll processes, you might consider, 'Can I do my own payroll for my small business?' Weigh the benefits and challenges to make the right decision for your business.
Discovering how to do payroll for a small business doesn't have to be overwhelming.
If you are interested in working with Access PeopleHR, start a free trial. This will allow you to see our platform in its entirety before making any purchasing decisions.
You might be interested in:
- What is the cost of making payroll errors?
- Integrated HR and payroll software: overcoming integration challenges
- Managed in house payroll vs payroll oursourcing services
