Setting up your payroll - checklist

If you take on employees, you will need to set up a payroll system to make sure you're fulfilling your legal obligations for collecting tax and National Insurance Contributions. Here's where to start.

• Check whether you need to operate PAYE. Even if your employees earn less that the lower earnings limit (meaning there are no tax and NI deductions), you will still need to keep payroll records.
• Ensure that you are registered as an employer with HM Revenue & Customs (HMRC) and register for PAYE Online.
• Decide who will be responsible for managing PAYE; consider whether you will operate PAYE yourself, use the services of a payroll agency or your accountant.
• Invest in appropriate payroll software: check it is compatible with HMRC's 'Real Time Information' reporting requirements and how it could be linked into your accounting system.
• Set up a payroll timetable: include the dates for making payments to employees, HM Revenue & Customs, and handling year-end PAYE filings and employee documents.
• Clarify the legal rules, and your contractual agreements, covering statutory pay including sick pay and maternity, paternity and adoption pay, pension contributions and any deductions from pay.
• Check employees' data is accurate and complete; gather any missing information ready for submission to HMRC.
• Establish a system for dealing with new employees, employees leaving, sickness, maternity, paternity and adoption leave.
• Implement a system for calculating additional pay (eg bonuses and commission) and any taxable perks (eg company cars).
• Decide how expenses will be handled.
• Put in place security measures to protect the confidentiality of payroll information and guard against fraud.
• Make contingency plans (eg if your computer system fails) to allow you to handle payroll and filings on time.
• Use your payroll system to generate useful management information (eg employee costs, individual employee's records).
• Keep up to date with payroll rules by reading HMRC mailings; if necessary, contact the employers' helpline or your professional adviser.