Business Basics: Tips for Becoming a Payroll Pro

Cara Squires, writer

Published at 01/05/2021, Updated on 04/05/2022 , Reading time: 5 min

Business Basics: Tips for Becoming a Payroll Pro — Photo © Payroll.jpg

Payroll is an integral part of running your own business, and running it smoothly. Paying your employees correctly and on time is an absolute must, so if you have employees, you NEED a successful payroll processing system.

In the last installment of the business basics series, we talked tips for becoming an invoicing pro. This time around, it’s all about payroll.

The word “payroll” actually refers to the full list of employees working for your company. But, in the world of business and franchising, the term is commonly used to refer to the entire process. Payroll equals all the money that you pay out to your employees.

As you might imagine, payroll is one of the biggest expenses for most businesses. It’s also easy to get wrong. And if you do make a mistake, you could land your franchise with a large fine, courtesy of HMRC.

Back in 2019, a survey of 251 payroll managers in companies with over 1000 employees found that 76% of companies admitted to paying their employees incorrectly on one or more occasions in the past year, with 8% confessing to having paid employees incorrectly over 12 times [Censuswide, for MHR].

These figures highlight the difficulties that can come with payroll processing. If you’d like to be in the minority, constantly paying correctly and quickly, read on...

What is payroll?

Payroll is all the money that you pay your employees, contractors and workers. The payroll process is designed to make sure that everyone gets paid the right amount, at the right time, every single time.

If you’re running a franchise, it’s important to ensure that you’re following payroll best practices. This is the best way to guarantee that your business runs smoothly, your employees are happy to work for you, and you’re not breaking any laws.

How does payroll work?

The payroll process in the UK goes as follows…

1. Gross pay is calculated

The employee’s gross pay is their pay before tax. This amount will change depending on whether their role has an hourly wage or a fixed yearly salary.

2. Deductions and additions are made as needed

At this point, the employer must make deductions and additions as required, based on things like:

Holidays and sick days taken
Overtime worked
Employee discounts, benefits and pension plans
Employee expenses
Employee bonuses, commissions and tips

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3. Net pay is calculated

Net pay refers to an employee’s pay after tax. This amount is deducted via PAYE (Pay As You Earn), and accounts for National Insurance and income tax.

4. All this information is reported to HMRC by the employer

Either on or before pay day, these figures must be reported to HMRC.

There’s also the question of how payroll works for franchisors and franchisees. If you’re a potential future investor, currently browsing our UK franchise directory for opportunities, you might be wondering whether the responsibility of payroll would fall to you or your franchisor.

In short, it depends on the franchise. Some franchisees run payroll systems of their own, specific to their individual franchise, and some franchisors prefer to control payroll for all employees under the company umbrella.

Regardless of the system in place, your franchisor will be able to support you through any queries.

Can I outsource my payroll?

If you’re wondering how to manage payroll, or how exactly to pay employees, you should know that there are a few different options, and each comes with its own pros and cons.

Regardless of the method you choose, you’ll likely need to run your payroll process on a computer. Since the end of 2013, most employers have been required by law to do so, as this ensures that HMRC can receive instant, up-to-date information each payday [payroll.co.uk].

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Method One = Manual processing of payroll

This is likely to be the cheapest method, but it’s also the method most open to human error, and the method that will probably take you the most time each month. It’s also worth remembering that if you incorrectly process your payroll, you could be heavily fined.

So, if you’re unsure what you’re doing, this might not be the best option.

Method Two = Processing using payroll technologies

Payroll technologies have come a long way in the last few years. Using software to process your payroll could be a solid, time-saving solution for your business that doesn’t require you to give up any control. These services tend to be user friendly and highly customisable, but there’s still room for error, especially if tech savviness isn’t your strong suit.

Method Three = Outsourcing payroll to an accountant

With expert franchises like TaxAssist Accountants on the job, you can be certain that your payroll is being handled right. Your payroll should be efficient, error-free, and easy on your end. However, accountants can be expensive, and some small businesses won’t have the funds to foot the bill.

In the end, it’s all about choosing a system that works for your unique situation, and for your particular franchise.

Important payroll processing tips

Communicate clearly with employees. Make sure you’re transparent with the people who work for you, so that everyone knows exactly what’s coming on payday.
Pay attention to employment laws, and adjust contracts in line with these. If your franchise employs a variety of different people, you’ll need to pay attention to your different contract types, and keep them in line with the law. Rules can differ greatly between employees, contractors and workers.
Stay ahead of the game. Try to make sure your admin tasks are a few days ahead of schedule, so that when payday comes around, you’re prepared.
Keep clear records. Make sure your records are clear, comprehensive and accessible. List every detail you need in an easy-to-find format, and you’ll save yourself a lot of time in the long run.
Don’t overcomplicate for the sake of it. You know your business best, and you should invest your time in the systems that will work best for you, rather than overcomplicating with additions to the process that you don’t really need.

Nail the business basics

If you can nail the business basics, you’re already halfway there. Point Franchise is always here to offer franchising advice, news and information. Learn something new every day with our wide range of articles.