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If you take on employees, you will need to set up a payroll system to make sure you're fulfilling your legal obligations. Here's where to start.
- Ensure that you are registered as an employer with HM Revenue & Customs (HMRC) and register for PAYE Online.
- Decide who will be responsible for managing PAYE; consider whether you will operate PAYE yourself, use the services of a payroll agency or your accountant.
- Invest in appropriate payroll software: check it is compatible with HMRC's 'Real Time Information' reporting requirements and how it could be linked into your accounting system.
- Set up a payroll timetable: include the dates for making payments to employees, HM Revenue & Customs, and handling year-end PAYE filings and employee documents.
- Clarify the legal rules, and your contractual agreements, covering sick pay and maternity, paternity and adoption pay, pension contributions and any deductions from pay.
- Check employees' data is accurate and complete; gather any missing information ready for submission to HMRC.
- Establish a system for dealing with new employees, employees leaving, sickness, maternity, paternity and adoption leave.
- Implement a system for calculating additional pay (eg bonuses and commission) and any taxable perks (eg company cars).
- Decide how expenses will be handled.
- Put in place security measures to protect the confidentiality of payroll information and guard against fraud.
- Make contingency plans (eg if your computer system fails) to allow you to handle payroll and filings on time.
- Use your payroll system to generate useful management information (eg employee costs, individual employee's records).
- Keep up to date with payroll rules by reading HMRC mailings; if necessary, contact the employers' helpline or your professional adviser.