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TAX AND PENSIONS
Payroll accounting deals with paying employees correctly and on time.
This process takes legal and tax obligations into consideration and ensures all payments are correct and paid on time, as any issues can lead to disgruntled employees and an unhappy working environment.
There are many things to take into account with payroll accounting, including staying on top of legislation and compliance, sending out the correct forms, and filing your taxes efficiently and on time. Here, we’ll run through what payroll accounting is and how to get started.
Payroll accounting is simply the process of tracking hours worked, and calculating and distributing wages and salaries to employees. This includes working out the correct statutory and voluntary deductions for each employee.
This process also requires working out the gross and net pay for all employees for the period of payment - whether that’s monthly or more frequently.
In order to process payroll, you need to:
look after personnel data
run payroll and work out payroll taxes
maintain employee forms
You’ll also be obligated to prepare and file end of year payroll accounting reports. These reports allow HMRC to clearly see and confirm any benefits, expenses and taxes that your business has paid.
The end of year reports also involve employees, as they’ll need to receive a P60, which gives a breakdown of their yearly gross and net pay, as well as a breakdown of taxes and National Insurance contributions.
Processing payroll can be difficult if you’ve never done it before, so it’s often advised to have a professional take this job on, whether it’s in-house or outsourced.
One of the most important aspects of payroll accounting is making sure you’ve calculated wages, salaries, deductibles and taxes correctly, especially for the year end reports. It’s crucial that you begin proper payroll accounting techniques as soon as you employ your first staff member.
Using an automated system or an integrated system with your current accounting software makes it much easier to work out the right wages, deductibles and taxes every month. Otherwise, you run the risk of relying on your formulas, calculations and manual data entry to get you by.
All too often, accountants find themselves faced with a mountain of their clients’ payroll records on their desks, many of which just don’t make sense. They’re faced with calculating each and every payroll run for the entire year because their client used out-of-date spreadsheets.
Another common problem is Excel. It’s all too easy to hit the spacebar and delete formulas mid-spreadsheet. And of course no one notices because the final formula still shows and there’s no data verification over the spreadsheet.
QuickBooks payroll software can help solve all these issues. Not only does it let you automatically send payslips, manage pensions and send submissions to HMRC, it also saves you time while doing it.
Payroll is a task that holds extremely high responsibility to the employer, and it can carry significant penalties if you get it wrong.
Many a small business owner has come a cropper through miscalculations, under-deductions or late payments. Why? Human error. Through tracking payroll manually, too many people make small, but significant mistakes. This means their payroll is wrong and they’re then faced with paying four-figure penalties.
The most important task you have as an employer is to stay compliant with payroll guidelines and regulatory requirements. But what does that really mean?
It means staying up-to-date with current tax rates, as they’re liable to change annually, as well as tracking holiday and sickness pay, overtime, benefits and even stock options.
This is a lot to manage and could potentially take up a lot of time if you do it manually, or separately from your current accounting system.
There’s so much to remember already alongside deadlines, managing vendors, customers and employees. You can simplify everything by automating your payroll processes with online (or cloud) accounting software such as QuickBooks.
Even better, integrating your payroll process with your existing accounting software carries significant benefits:
It eliminates the possibility of transposition errors There’s no need to copy the figures from your online payroll calculator or third party payroll service into QuickBooks.
More efficient data reporting and budgeting As payroll figures can be combined into budgets, it’s easier to spot overtime or over budget figures. This gives managers the information they need efficiently so they can make appropriate decisions quickly.
Confidently track Changing Tax Rates The points at which your employees hit particular tax thresholds can change regularly – especially for those at the lower end of the tax scale.
Maintain one central source for all employee data It’s then so much easier to complete P60s and other forms. QuickBooks streamlines the process so the actual data entry for these forms is flawless.
Better job tracking, billing and matching hours to jobs As a business owner, understanding which jobs are most profitable, and why, is essential to growing your business. Having all your data in one system allows for complementary reporting so you can drill down and see what items are affecting the bottom line.
Up-to-date tax tables An automated system with regular scheduled updates keeps you in safe waters when you make deductions. The correct numbers are inputted automatically. There are companies who will offer to do this job for you, but a system that’s integrated with your current QuickBooks software is the only way to ensure complete data integrity and consistency.
The majority of accountants recommend their clients use a fully integrated accounting system. One like QuickBooks, which manages all aspects of the business, from bookkeeping, to inventory management, to payroll. It’s the only way to ensure maximum time management, reliability and accuracy.
Gone are the days of sweating over mile-long spreadsheets and manual calculations and reconciliations. It makes sense to simplify your payroll – you’ll be glad of this when it comes to year end.
We hope you found this article useful. Why not try QuickBooks free for 30 days and see for yourself how it improves your workload, and your stress levels.