Setting up payroll for the first time

A happy client is a joy to have and worth cultivating.

But when the client’s business expands, and the owner wants to take on employees, the agent or bookkeeper needs to consider the time and skill implications required for the additional work.

Making the payroll decision

The first question that must be answered is ‘Do you want to do it?’ If the answer is yes, then is the client going to be charged for what may initially be one employee or is the cost for that employee going to be absorbed by the bookkeeper?

Whether the costs are charged or absorbed there will need to be an agreement setting out the parameters of the work to be done. The agreement should preferably be in writing but, is often verbal. To maintain a good relationship with the client it is suggested that a written document outlining the points agreed be sent to the client as a reminder of the conversation. If the verbal agreement was a while ago, a review of the situation is recommended, and then written up.

Organising a contract between you and your client

The contract should specify the costs for each payroll run, the payday and the deadline by which the information should be received so that the payroll is completed on time.

Considering the right software choice

The next decision to be made by the bookkeeper is one of software choice. It may be that it is only the one client that will need payroll services. In which case, investing in expensive payroll software may not be cost effective, and Basic Payroll Tools (BPT) as supplied by HMRC may be suitable. But if the accounting software used offers payroll software as an add on, then that should be considered.

Proprietary software can be expensive, however, there is also a spreadsheet that is made available on The Pensions Regulator . The latter is free, but it is only a spreadsheet. It cannot be integrated into payroll software. The benefit of this needs to be weighed up against other available products.

Setting up the right procedures

Payroll is defined by salary, age and deadlines. Procedures will need to be set up, for example, to review each employee pay against minimum wage limits. Apprentices should only be on the apprentice rate for the first year. After that, the minimum wage for the relevant age range should be used. Payslips are legally required to be available to employees on or before the payday and should contain, at the very least, the minimum information required by law.

Meeting the Full Payment Submission (FPS) deadline, and prompting the client to pay the tax and national insurance liability to HMRC every month will become the bookkeepers’ responsibility. Electronic prompts and other similar methods should be utilised to ensure that these important duties are met.

Automatic enrolment – pension payments

Along with payroll duties there may also be automatic enrolment requirements. All organisations are now required to automatically enrol their employees for pensions.

Again, the action to be taken is dependant primarily on age, though other employees can opt-in, and any employee who has been making automatic enrolment payments can at any time opt-out. All this will need to be managed. For new employers the requirement is from day one. The contract for this duty will need to be specific as to what the bookkeeper’s duties are, and what the employer will be responsible for.

The negotiations should encompass such tasks as, who will send out the notifications and letters informing employees of rights, responsibilities and options.

Who will be the main recipient of employee communications, and if the recipient is the employer, then how will the information be communicated to the bookkeeper?

What pay should the pension contributions be based on? Basic pay? Basic pay plus overtime? Basic pay plus bonus? All three?

It is important to document and get confirmation of which amount to use, from the client.

When will the deadline for pension information be? It may or may not be the same time as the payroll information.

Which pension company should be used? The client will have to contact pension companies and make the decision. The bookkeeper cannot advise.

All the above, and other points need to be discussed, as the client will usually be unaware of the complexities involved. Discuss with the client, and while there, inform of the costs for this tax year and the increase in employer and employee contributions due in the next tax year.

Procedures

The bookkeeper will in probability be the one to set up the pension with The Pensions Regulator. Though the employer will have supply information, the bookkeeper will no doubt be the one to process the automatic enrolment duties. The bookkeeper will also need to complete the Declaration of Compliance at the end of the process. Failure to meet The Pension Regulator Requirements can lead to notices and penalties.

Enrolling, opting in and opting out are all options available to the employee. Records of their decisions, of enrolments and of the pay used need to be kept. Who keeps them? Review every month of the age and pension status of each employee needs to made. Payments need to be deducted, recorded and paid to the relevant pension company.

The bookkeeper will need to decide whether to take on the payroll and pension work, whether to outsource or whether they advise the client to find another bookkeeper. If the decision is to take on the extra work, written records of discussions, contracts, agreements and procedures will prove invaluable in ensuring that the happy client remains happy, and the bookkeeper satisfied that a good job is being done.

Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.

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