Complete guide: how to do payroll for small businesses

Payroll services are an integral part of any business. Whether you have a handful of employees or a large corporate company of 250+ staff, ensuring you have an efficient payroll solution is crucial.

Because let’s be honest – the main reason why we all work is our pay.

That’s why payroll is one of the most important aspects of a business, as it facilitates the rewards your employees need and deserve for turning up and doing a good job.

As a small business owner, working out payroll for your employees may seem like a daunting task at first, with a whole host of red tape and complexities. Errors can often result in unhappy employees and a potentially awkward Monday morning in the office.

However, doing payroll for a small business doesn’t need to be confusing or daunting. There are certain steps and processes to follow that can help you do payroll for yourself and remove the stress from payday and ensure your employees are paid on time, accurately, every time.

What is payroll?

Put simply, payroll is how your employees get paid for the work they’ve completed. While this includes the obvious things such as salary and wages, it also includes any bonuses or benefits your employees may be eligible for.

In larger companies, payroll would typically be managed in the HR or accounting departments. But in an SME, the responsibility for paying staff may fall entirely on to the owner or officer administrator, who don’t have the luxury of relying on a dedicated payroll specialist.

There are three essential tasks involved in the payroll process:

  1. Working out your employees’ salary and paying them
  2. Deducting things such as Income Tax, National Insurance and Student Loans and paying HMRC
  3. Recording and reporting accurate payroll information to HMRC

We’ve compiled some simple steps to follow to make sure you complete these three essential tasks.

Register your company with HMRC

Step number one in payroll processing is to register yourself as an employer and receive your Pay As You Earn (PAYE) and Accounts Office numbers.

PAYE is HMRC’s system to collect Income Tax and National Insurance from UK employees and is an essential part of your payroll.

You need to register with HMRC up to four weeks before you can pay a new hire, so it’s essential you do this with plenty of time to spare

Choosing a payroll service

Step number two in processing payroll for your small business, is deciding how you want to run it: manually or with professional support.


You may decide to run your payroll manually. While this is a time-consuming process open to human error, it is a free way to pay your employees – ideal for cash-strapped start-up businesses.

If you decide to run your own payroll, you’ll have to report your payments and deductions to HMRC on or before each pay day. Additionally, you must make sure to you adhere to any and all payroll related laws – failure to calculate tax deductions correctly could result in legal penalties.

Professional Support

Many small businesses opt to outsource their payroll services. Whether it be a registered payroll professional, accountant or payroll agency, having a specific person/ team in charge of payroll, with extensive experience, will help your small business navigate any challenges in payroll.

Another way to manage payroll is by using payroll software. This can be a time and cost-effective way of managing payroll in your small business, without needing extensive knowledge of the process.

Visit HMRC’s payroll software page to see their recommended payroll software suppliers.

Pay employees with IGsend

 Our innovative payroll payment solution integrates with your existing payroll software or solution to make sure your employees get paid on time and without errors via instant payments.

Replacing the labour and time-intensive BACS payment service traditionally used in payroll, IGsend allows payroll teams to make instant payroll payments, whatever the time, whatever the day. This eradicates potential errors caused by the outdated and cumbersome BACS system, reducing the pressure placed on the personal responsible for your monthly payroll while also offering your employee increased flexibility around their salary.

With instant payments, you’ll be able to choose your own payroll cycle, with no need to enforce strict cut off dates. In the longer term, this could even mean that your staff can choose when or how often they are paid, an effective technique for attracting new talent to enhance your growing small business.

Record accurate information

However you decide to run your payroll, you must collect and keep accurate records of what you pay your staff and any deductions to their pay, for up to three years from the tax year they relate to.

When you pay your employees, this must be recorded through a payslip sent each payday under the Employment Rights Act 1999 section 8.

On your employees’ payslips you must note their gross and net pay. Their gross pay is their total pay with no deductions, while their net pay is the quantity they receive after tax and other deductions.

The payslip should include:

  • Gross pay
  • Net pay – outlining the deductions of tax, national insurance, student loan payments, etc.
  • Method of payment

Report everything to HMRC

HMRC is an essential part of the payroll process and must be kept up to date and informed with all things payroll.

This includes any employee details (and changes to these details), to keep an accurate account of your staff and how much they owe through taxes and other deductions.

Some examples of when you need to notify HMRC:

  • An employee joins/ leaves
  • Any promotions/ demotions
  • Leaves of absence
  • Changes of addresses
  • Receiving a workplace pension

Once you’ve paid your staff, all UK businesses must report this to HMRC through the Full Payment Submission (FPS).

The FPS must declare employees’ gross and net pay, including any deductions for taxes, student loans or benefits in kind.


Finally, you are legally obliged to pay HMRC all the deductions from your employees’ wages that you worked out earlier. This needs to be completed either on payday or before the day itself each month.

It is your responsibility as a small business owner to make sure these payments are made accurately and on time, or you could face financial penalties and interest fees on late payments.

Faster payments

Faster payments are an effective way of facilitating your payroll payments.

The BACS payments system is outdated and is not agile enough to keep up with evolving needs of a growing business. With funds taking three days to clear into the recipients’ bank account, and payments only being able to be made on a weekday within certain hours, errors made within a BACS payroll model can take days to rectify.

Instant, real-time payments can be made within seconds, any time of the day, every day of the year.

They eradicate the need for extensive admin work in the build-up to pay day, instead allowing for more agility for busy SME owners and office managers who include payroll on their ever growing to do list.

IGsend facilitates these simple, Faster Payments, which are made and cleared within a matter of seconds.

With our competitive monthly pricing options, you could pay your staff for just £6.99 a month, removing the stress of complex payroll solutions.


Payroll is an essential part of every business, be it multi-million-pound corporation or an ambitious new start-up.

Doing payroll for a small business doesn’t have to be such a complex and daunting process and can be made simple through innovative new technology that allows you to pay your staff in the same way you would repay a friend for a cup of coffee.

Book a free demo to see how IGsend can support your small business.

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