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Payroll, Pension & Expenses
Running Payroll
Payroll checklist
Tracking payroll changes
We currently have a few different ways of doing this.
When a client sends emails
Create tasks when we receive an email from the client throughout the month
HR Software (ie - Charlie HR)
Downloading reports for;
Joiners
Leavers
Salary changes
Accrued holidays for leavers
What's our general approach?
Track changes in HR software (limited
Track changes in Google Sheet - easy to see month on month changes
Processing payroll changes
New starters
Information required from employee
New starter form or P45 (either of is fine)
Bank account details
Information we should already hold for the client
Pension enrolment (immediately or deferred for 3 months)
Annual salary
Start date
Add personal details
Add tax details
P45
If there is no P45, the payroll software will default to a
If there is a P45, enter the information in Xero exactly per the P45 in Box 7
Student Loan
if information is provided in the new starter form, enter accordingly
Add employee to pension scheme
Select whether the employee is in a pension scheme:
If
No
, Xero assesses the employee for auto enrolment, and adds pension pay items to their pay template.
Defer for auto-enrolment
Leavers
Information required from the employer
Last day of employment
Any holiday accruals
Any redundancy payments
Any other deduction (ie - season tickets loan, laptop purchase etc)
Salary changes
Commission
Bonus
Salary increase or decrease
Pension contribution changes
In the UK, all employees aged over 22 years old and earning a minimum of £10k a year are opted in to pension contributions, unless they opt out.
If they are under 22 or earning less than this amount, you can ask the employee if they’d like to voluntarily enrol or “opt-in”.
If they opted out within the first month, the employee will be able to get the money back. If they opted out after that, they can't get the money back but no more contributions will be made to their pension fund.
An employee can defer their enrolment for 3 months after joining the company. If they choose to defer, you must send them a postponement letter. This is automatically generated in Xero under the pension section. After 3-months they must be enrolled.
When adding an employee in Xero, Xero will automatically prompt you to enrol them in the pension scheme if they have not been deferred. If they have been deferred Xero will automatically ask you to enrol them in 3 months time when processing pay-run.
When employees are enrolled, you must send them a pension eligibility letter. This can be found in Xero once the pay-run has been processed under the employees name and under the pension tab.
On occasion, employees may want to increase their pension contributions or to opt out of pension
Pension contribution holidays (pause contributions)
3 yearly enrolment day
Tutorial (TBC)
How to change employee contributions
How to opt out of pension contribution
Checks
What can go wrong
What checks in place
1
Salary changes not put through
Gross salary month-on-month and provide commentary for any changes
2
Not adding pension contributions
Net salary month-on-month and provide commentary for any changes
3
Tax code changes causing a significant change in net salary
Net salary month-on-month and provide commentary for any changes
4
Applying salary changes to the wrong person
Gross salary month-on-month and provide commentary for any changes
5
Paying to the wrong bank account
6
Not paying the PAYE payment before the next deadline
7
Not applying salary increase after probation period
8
Tax notices received in HMRC not applied in payroll system
9
Taking student loan deductions when we should haven't / Not deducting student loans when should have
10
Not deducting pension deductions when we should be
11
Not posting payroll before paying employees
There are no rows in this table
11
Count
Pension providers
Where have an agent account
Smart Pensions
NEST
Where we don't have an agent account
Aviva
The People's Pension
Christmas payroll
TBC
End of tax year procedures
Checks
PAYE and NI liabilities
Ensure that Wages Payable account is nil
Reconcile PAYE and NI payable account to payroll reports (P11 NIC and P11 PAYE)
Reconcile PAYE and NI payable to HMRC portal
Compliance deadlines
Send final FPS of the year (same process as per the monthly FPS)
Send employees P60 by 31st of May
Report employee benefits (P11D) by 6th of July
PAYE Settlement Agreements by 6th of July (payment by 22nd October)
Payroll software
Software
Pros
Cons
1
Xero
integrated into accounting system
only online support
automatic payroll journals only allocate gross salaries to different departments, not associated costs such as Employers NI and Pension Costs
inability to export csv reports vs gross and net
2
Payfit
free migration
hands-ons support via video call and online support
reports on gross salary and net salary
rapid development
a growing startup so product occasionally buggy
3
Sage Payroll
There are no rows in this table
3
Count
Other payroll technicalities
Holiday accruals
Check holiday allowance for employees per the employment contract
For example, 28 days (including public holidays is statutory holidays)20 days
Start - 2nd December 2019, End - 27th of March (4 months)
PAYE Settlement Agreement
A
allows you to make one annual payment to cover all the tax and National Insurance due on
expenses or benefits for your employees.
Migrating payroll software
Importing opening balances
When transferring mid-year, we need to make sure that opening balances are correctly imported from Employee YTD reports from another payroll software
Migrating to Xero
Populate Payroll Settings
Organisation - Check that the expenses and liabilities are posted to the correct G/L
HMRC - Check the HMRC information is correct and the HMRC business account is linked to xero
Calendar - Add a payroll calendar based on the correct payment date
Workplace Pension - Check that the pension scheme is correct
Pay Items - Set up custom pay items so that salaries are automatically posted by department. Steps on how to do this can be found
. Note that employers NI and pensions will have to be split using a manual journal.
Add Employees
Manually input remaining information (salary, bank account)
Set up the pay template
For each employee select any deductions, pensions contributions or benefits that should be accounted for
List of information required
Employee Details (Name, DOB, Address, NI, Student Loans, Tax Codes)
FPS (xml format)
Balance Sheet
Review Wages Payable account
Review PAYE Payable account by comparing to the amount due per the HMRC business account
Review Pensions payable by comparing to the amount due per your pension provider
What can go wrong?
Employees can be duplicated if the payroll IDs are incorrect
Next steps
Cyclescheme
Some startups will have a cyclescheme where an amount is deducted from the employee’s gross pay - which means it’s tax efficient for them to purchase a cycle through the cyclescheme since their PAYE and NIC will be lower.
The employee deductions are inclusive of VAT and emploeyrs are expected to pay over to HMRC the VAT included in the payments received.
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