How to do payroll yourself

Has payroll been getting you in a spin? Managing your business's finances and making sure employees are paid on time, in the right way, can sometimes be dizzying. With QuickBooks, we’ve got the answers to help you find your feet and make sense of those recurring payroll-related headaches. The right payroll system, can help you remain compliant, streamline payroll processes, and save time without an economics degree.

Discover how to do your own payroll, common challenges and ways to overcome them, as well as choosing the right method for you. Read on and tackle your payroll problems with QuickBooks today.

Doing payroll on your own: In summary

• As a business owner or payroll manager, learning how to handle payroll is essential for ensuring employees get paid accurately and that you remain compliant with HMRC.

• There are a lot of ways to do payroll on your own, although it can be time-consuming and come with a high change of inaccuracies, which could lead to penalties.

• Payroll software can support your payroll needs without removing your agency or oversight.

What is payroll and why is it important for your business?

Payroll is essentially the act of paying your employees, including salaries and wages, bonuses, and any deductions — such as benefits and income tax. It’s not just about paying your employees; it’s also about remaining compliant with legal payroll tax regulations, managing cash flow, and reporting expenses.

Simply put, your business can’t operate without payroll. So, you either need to learn how to do your own payroll or arrange for someone to do it for you. In this article, our focus is on doing payroll yourself.

If money makes the world go round, payroll certainly keeps things spinning.

Key steps to doing your own payroll

Doing payroll yourself can be intimidating — especially for those of us who are used to outsourcing it entirely. With Payroll such an essential process, it’s important to calculate things correctly. However, between Income Tax, National Insurance Contributions, Pensions, Student Loans, Gross Pay, and so on, you may feel overwhelmed by the sheer number of things to factor in.

Don’t worry, with these key steps, you’ll be on a roll with payroll in minutes. Here are some of the key steps to setting up payroll on your own:

1. Register as an employer with HMRC

You must register as an employer when you first hire an employee, before the first payday (but no more than 2 months in advance), using the online Gov portal. This ensures you can get your Employer PAYE Number, which will be sent to you via a letter. 

Visit .gov.uk for more information.

2. Gather employee information

When you hire a new employee, you need to collect some relevant information to run payroll accurately. This includes:

• P45s or P60s

• Personal information, e.g., full name, home address, date of birth, etc

• National Insurance Number/SSN, tax codes, and bank account details.

Without the correct information, you won’t be able to run payroll properly.

3. Calculate gross pay

Gross pay is the total amount your employee has earned before any deductions, such as income tax or National Insurance contributions. However, there are exceptions, such as Salary Sacrifice Schemes or Pension Contribution.

To calculate gross pay for:

• Hourly wage employees - Multiply their hourly rate by the number of hours worked.

• Salaried employees - Divide their annual salary by the number of pay periods in the financial year.

To help you calculate pay, the UK Gov website offers online calculator tools.

4. Work out deductions

Calculating deductions is part of your payroll responsibilities, and there are a range of deductions you need to consider when calculating your employees’ net pay, such as:

• Income Tax (PAYE)

• National Insurance Contributions (NICs)

• Pension Contributions

• Student Loan repayments

• Other statutory deductions, such as an Attachment of Earnings Order.

5. Generate payslips

It’s a legal requirement to provide a payslip to your employees, and they must show the following information:

• Earnings before and after any deductions.

• The amount of any deductions that can vary, such as PAYE or National Insurance.

• The number of hours worked, if hours worked affect pay. 

Employers must also explain the deductions, for example, if it’s part of a “Cycle to Work” scheme or season ticket loan, either on the payslip or in a separate statement, which has its own rules.

Learn more about payslips.

6. Report to HMRC (RTI submissions)

Real Time Information (RTI) submissions are reports that you must send to HMRC when an employee is paid. These are mandatory submissions, which record employee pay, deductions, and taxes. These should be sent from your HMRC-approved payroll software.

7. Pay employees

There are several ways to pay your employees, such as a BACS (Bankers’ Automated Clearing Services) transfer or faster payments via a dedicated payroll software provider, which can sort HMRC PAYE requirements automatically. Other methods pay include cash, cheques, or prepaid payroll cards.

8. Pay HMRC

Employers should report employee pay and deductions via RTI on or before each pay day and must pay PAYE and National Insurance Contributions by the 22^nd of the following month electronically (or the 19^th for cheque payments). 

9. Follow a year-end procedure

Year-end payroll procedures for employers include:

• Reconciling payroll

• Filing a Full Payment Submission (FPS) by the final pay date.

• Filing an Employer Payment Summary (EPS) by the 19^th of the following tax month, which adjusts for liabilities such as claiming statutory pay or Employment Allowance.

• Reporting any benefits-in-kind (P11D).

• Providing P60s to employees by the 31^st of May and amending software or tax codes ready for April 6^th.

The tax year ends on the 5^th of April in the UK, and this is your “year-end” point.

Choosing the right payroll method for you

Suffering from choice paralysis when it comes to picking your approach to payroll? There are a few ways to do your payroll, and the best way to decide which suits you is to get informed.

Manual payroll

When a business is small, some owners opt for manual payroll, using spreadsheets or paper records to manage their finances. It’s a low-cost strategy that affords you complete control over your payroll, making it easy to adapt and work flexibly with small teams.

However, that flexibility comes with some cons too. Not only is the process time-consuming, but it also carries a higher risk of error, which could inconvenience your employees or result in compliance issues (and fines). Manual payroll processes are also difficult to scale, and data is not as secure as it could be.

Payroll software

Payroll software can smooth over a lot of the issues of manual payroll, without stripping you of the agency or control, as you’re still doing the process yourself. All in all, it can be a more efficient way of handling payroll processes. Many businesses opt to use payroll software due to the many benefits it provides, such as:

• Improved security through processes like access control. 

• Enhanced accuracy and data consistency thanks to automatic updates for tax law changes, regulatory requirements, and system integrations with accounting or time/attendance software.

• Scalability and the ability to handle increasing employee numbers without significantly increasing any associated workloads.

• Time savings through tools like automation, which can handle repetitive, time-consuming tasks.

• Self-service for employees, allowing them to access and download their pay slips, and manage their personal details, reducing the workload on you or your team.

Learn more about QuickBooks’ HMRC-recognised Payroll Software.

Outsourced payroll

Sometimes, people decide that doing their own payroll is too time-consuming or challenging and choose to outsource it. This comes with many benefits and can remove some administrative burdens, but might not be desirable for everyone due to the loss of control, data security risks, potential for delays, and ongoing costs. It also means you’re dependent on the service provider and their way of working.

Common payroll challenges and how to avoid them

Part of learning how to do your own payroll is understanding the common challenges and pitfalls to avoid potentially costly mistakes. 

Avoiding penalties

Not adhering to HMRC-issued rulings or timelines can result in hefty fines, which can quickly add up. You must remain up to date with HMRC guidance and meet submission and payment deadlines. That can be easier said than done, especially if you’re busy running a business. 

Payroll software can help you remain on time, compliant, and accurate, reducing the chance of compliance-based payroll penalties.

Ensuring accuracy

Whenever you’re entering data, calculating pay and deductions, or keeping digital records, you should double-check anything you do. Even with automated systems, if the data is wrong, then you’re already working at a disadvantage. Inaccurate data can impact employee pay or land you in trouble with HMRC. Tools such as payroll software that reduce this burden can help, but it always pays to double-check. 

How QuickBooks helps with payroll

QuickBooks Payroll Software comes with a toolbox of features that can help you with compliance, streamline payroll processes, and provide HMRC-recognised software perfect for managing payroll efficiently. 

Sync your timekeeping software and automate long-winded, complex, and menial tasks so that payday isn’t bogged down by payroll. Handle payroll on your own, with a helping hand from QuickBooks.

Learn more about QuickBooks today.

How to do your own payroll FAQs

What is the difference between gross pay and net pay?

Gross pay is the total amount someone earns — that’s the total amount, before any deductions, not what they get into their bank account. Net pay is what your employee “takes home”; this accounts for taxes, benefits, and other deductions. Think of net pay as the actual cash someone receives.  

How often do I need to report payroll information to HMRC?

To remain compliant, you must report any payroll information to HMRC, such as your RTI and FPS submissions, on or before each payday. That means if your employee’s pay is fortnightly or weekly, you need to submit an FPS every one to two weeks, respectively. 

Can I switch from manual payroll to software at any time? 

Yes, you can switch from manual payroll to software at any point. Data migration can be a bit trickier if you switch partway through a tax year, but many providers offer solutions to important year-to-date (YTD) data, removing a lot of the burden of switching. 

How can I make my payroll process more efficient? 

Switching to payroll software can help streamline your payroll and make the process more efficient. It can automate payroll steps, help maintain HMRC compliance, reduce the risk of errors and save you time to reinvest in other areas of your business.

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