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A guide on Payroll, Pension and Employee Benefits

Luisa Syed 31 Aug 01:20 4 min read

In this guide, we will look into Payroll, Pension and Employee Benefits. What they are and why they are essential as a business owner and an employee, and why these three points should be at the top of your 'to-do list' when starting to hire employees.

What is a Payroll?

When you own a business and consider expanding and hiring employees, you will need to pay them, which is carried out through a 'Payroll'. The literal term for 'Payroll' is a list of employees of a business and how much money they are entitled to. It is the biggest expense of a company, and therefore a company must run a payroll properly to avoid fines. Payroll consists of various calculations such as your employee's salary or wage entitlement, tax and national insurance contributions (NIC), monthly HMRC payments and maintaining various records (i.e. P45a, P60s, Payslips etc.).

What steps involve running a payroll?

You can run payroll by yourself or using a payroll provider; if you choose either, it is essential to adhere to the HMRC guidelines and rules; otherwise, you could end up getting fined. But it generally involves the following steps:

  • Calculating how much your employee will get paid (gross pay before tax) – this can differ between those who receive wages (hourly pay) and salaries (fixed monthly payments)
  • According to the employee's tax code, calculate how much Tax and National Insurance contributions need to be deducted from your employee's gross pay.
  • Calculating any additional deductions for sick days, holidays, pension scheme, student loans etc., or extra pay for overtime, commission, bonuses etc. - This may vary depending on the business.
  • Report your employee payments and deductions to the HMRC.
  • Create Payslips.
  • Pay your employees on time.
  • Pay HMRC.

Methods of running a payroll

By Hand

You can manually run a payroll, which will save you money. However, it will be more time-consuming; you will need to always correctly calculate the data and, most importantly, pay your employees accurately and on time, or you could get fined.

Hire an Accountant

You can hire an accountant, who will most likely work quicker, more efficiently and accurately. They will be an expert in their field and be able to handle extensive data quickly and accurately. But keep in mind hiring an accountant may end up a costly addition.

Use payroll software.

Using payroll software is becoming a popular choice by businesses, as it is the best of both methods as mentioned above – it is cheaper and less time-consuming. Payroll software will help you efficiently run payroll accurately and quicker at an affordable price. There are some features that you should look out for when using payroll software, such as:

  • Automating payroll and update and make adjustments to employee earnings automatically.
  • Connect to HMRC automatically to send over all payroll data.
  • Generate accurate payslips, P45s, P60s and other forms

Key points to help you run a Payroll smoothly

  • Make sure to register your business to the HMRC.
  • Keep accurate records of your employee's gross pay and deductions.
  • Inform your employees properly of how they will be paid and any deductions that will be made i.e., Tax & NIC, pension scheme, sick day etc.
  • Keep track of payday, make sure to be on top of record tracking and reporting to the HMRC on time to avoid delaying your employees' payments.


What is a pension?

A pension allows workers to save up and invest for their retirement. The amount workers will receive depends on the contributions they have made during their employment. In the UK, contributions are made from the employee, employer and the government (State Pension).

Why is a workplace pension scheme important?

Under the Pensions Act 2008, every employer is required to offer a workplace pension scheme to their employees. Therefore as a business owner, it is essential to enrol employees into a pension scheme automatically.

How much is contributed towards a pension scheme?

This will depend on the type of pension scheme an employer has for their employees and what they consider as earnings. But from April 2019, as an employer, you will need to contribute a minimum of 3%, and employees will need to contribute 5% from their total earnings before tax.

Who should be enrolled in a workplace pension scheme?

Your employees are eligible if they are:

  • Not already part of a workplace pension scheme
  • Aged 22 or over
  • Earning more than £10,000 a year

Any employees who do not meet the criteria mentioned above, due to their age or earning less, can be enrolled in the scheme regardless, but as a business owner, you are not obligated to make contributions.

Employee Benefits

Companies have been introducing several non-financial benefits for their employees. This can be in the form of healthcare insurance, discounts, equipment, facilities etc. But what exactly are employee benefits, and why should you consider them for your business?

What are employee benefits?

Employee benefits are various non-financial compensation provided by a company; sometimes, these benefits are also seen as perks and have become a must-have for most companies. Employee Benefits are beneficial to both employers and employees and help lead a happy and productive workforce. These benefits are usually offered to every employee, regardless of their level or starting date, although some companies may offer more benefits to their senior employees.

What is the purpose of employee benefits?

  • For employers, it allows their employees to know that they are valued and that their well-being is important. It helps them recruit and retain the best employees and helps improve company culture.
  • For employees, it helps them maintain a better work-life balance, save money for themselves and their families, and improve their workplace well-being.

There are many different employee benefits, but these vary amongst companies.

Common Employee benefits or perks offered:

  • Pension
  • Sick Pay
  • Holiday allowance
  • Bonuses
  • Maternity Leave
  • Childcare vouchers
  • Private Medical & Dental Insurance
  • Gym Membership
  • Company Car and car allowances
  • Restaurant & Cinema vouchers

Employee Benefits should be taken into consideration when starting to hire employees. Not only will it help you attract applicants, but it will help you gain committed and happy employees. Make sure to include them in job descriptions, employee contracts, employee handbooks or company websites.

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