If you employ even one member of staff you need to set up a payroll. There are many rules to be complied with so you might be tempted to let someone else take care of it. But could you do it yourself?
Payroll basics
Whether you’re about to set up a payroll for the first time or if you’re upgrading your existing system, it helps to know what you’re supposed to know. And if you use a payroll bureau without knowing what’s involved, you might be surprised how easy it can be - and decide to do it yourself.
Manual calculations?
If you run a small business you can operate a manual payroll system. This is not as easy as you might think. Everything has to be recorded and calculated manually. This might be OK if you already employ the services of a competent and numerate bookkeeper but if you’re just about to establish a payroll we’d advise against this method. The fine for sending in the wrong information could be £3,000 per employee!
Auto makes sense
Most businesses prefer to automate payroll. This effectively leaves you two choices -
1) do it yourself using some specialist computer software or
2) pass the entire responsibility to a payroll bureau or a firm of accountants.
Costly. A major payroll bureau that we contacted quoted £6.50 per employee per month. For 10 employees this could mean £780 p.a. plus VAT. Accountants might well be cheaper and certainly worth considering if keeping sensitive payroll information off site is important. If a firm already looks after your business, adding the payroll function is unlikely to add more than a few hundred pounds to the annual bill. A software package like that available from Sage or Pegasus will start at around £200 (rising to approximately £350 for up to 100 employees). However, you will of course have to factor in the cost of your time (or another employee’s) needed to operate it. The purchase price is a one-off payment. Whereas with a payroll bureau fees will rise as new employees join.
Tip. Contact your accountant to see whether he can handle your payroll for only a marginal increase in the fees you pay.
Decisions, decisions
The real questions are whether you’re prepared to lose control of payroll and whether you have the existing resource to be able to manage it in-house. On the resource side, once all the employee information has been entered into your computer, it will require no special skills or huge amount of time to operate the payroll - we reckon no more than a couple of hours per month. It’s really only a question of keeping the information up to date. For example if an employee is off sick you simply mark the dates on the calendar supplied with the software - the computer will then calculate whether pay is due and at what rate, including SSP. It will also generate all the vital year end forms needed such as P11Ds and P14s.
Although a manual payroll system is not for the fainthearted there could be savings to be made by investing in a software package. Alternatively, see if your accountant can do the work for a marginal increase in his annual fee.
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