What is payroll?
Payroll is the compilation of the amounts of money owed to the employees of an Organization. This involves calculating amounts earned, applying all deductions, and paying net amounts due to both employees and Tax Collection Authorities.
Payroll is an essential and vital part of every business because:
* Employees expect to receive a net amount of pay that reflects their full rights after authorized and statutory deductions have been made.
* Government departments authorized to collect taxes expect payroll calculations to be correct.
* Labor costs form a large part of a company’s overhead and must be accurate for profit calculations to be determined correctly.
A payroll clerk or administrator has a great responsibility to ensure that accurate calculations are made and should be aware of the following:
Income Tax and Social Security Contributions
Any person whose income exceeds a certain figure, which is set by the Government, must pay Income Tax. This rule extends to the elderly, pensions, dividends and interest on investments, income received from the lease of real estate and benefits in kind.
National insurance contributions
National Insurance Contributions (NICs) are a form of tax intended to fund state welfare benefits such as:
* Unemployment benefit.
* Retirement pensions.
* Sickness benefits.
* And other forms of state benefit.
Gross Salary Calculation
Hourly rate
Workers are paid an agreed rate for every hour, or part thereof, that they work. Usually, the total number of hours required per day or per week is agreed upon and any time worked in excess of these hours generates additional payment, known as overtime.
We also have to take into account:
bonus payouts
Commission
Other supplements to pay
Wages and salaries are often supplemented by benefits of another nature.
These are quite varied, but may include:-
*Private Health Insurance.
* Company vehicle.
* Payments for commuting from home to work.
* Staff engagement plans
* Loans
Pay as you earn (PAYE)
Employers are required by law to make deductions from employees’ earnings for both income tax and national insurance contributions. Generally, payroll is calculated and paid weekly or monthly, and again, weekly payments are classified as wages, while monthly payments are classified as wages.
Personal authorization
Everyone is entitled to a personal allowance – this is the amount of income someone can earn before they start paying taxes. Keep in mind that income includes earnings from work, pensions, interest on investments, dividends, rental property, etc. This personal allowance may also be referred to as tax-free payment.
tax codes
Everyone who works receives a tax code from HMRC. Tax codes are usually made up of a letter and numbers and are used to calculate personal allowance and taxable pay. The letter simply shows how it should be adjusted after any announced changes to the Budget. It does not affect the amount of tax you pay.
Restriction on the age subsidy for single people
* Age allowance for married couples
* Emergency Tax Codes
These are used when someone entering payroll is unable to provide code number information or prior earnings details using a P45 form. The emergency code is equivalent to a single person assignment but operated in a 1 week or 1 month.
SSP or statutory sick pay, maternity pay, student loan repayments are among other items that a payroll administrator must take into account and calculate an employee’s wages and layoffs.
Employer contributions
In addition to paying employees a gross sum, the employer also has to make National Insurance payments to HMRC on top of what the employee is paid. This is usually about 1% more than what the employee pays. So if the employee pays £10 in National Insurance, the employer also has to pay around £11 on top.
As you can see, payroll administration is very complicated considering that the above is just a condensed version of what it is all about. HMRC has offered incentives for companies to switch from manual payroll to computerized payroll. Sage Payroll is the most popular payroll administration software used in the UK, and learning how to use it is becoming essential. Because once learned it is extremely accurate and easy to use. This system is extremely efficient and can save you up to 60% of your time. On average, for an experienced payroll administrator, the Sage 50 Payroll Professional package only takes around 20 hours to learn. For a complete beginner who wants to gain recognized qualifications, it is advisable to start by learning the basics and administering payroll in the traditional manual method, and then move on to learning the Sage computerized payroll package. Training Link offers both the ICB Diploma in Payroll Management courses and stand-alone Sage Payroll training courses. The diploma course takes around 50 hours to complete and by passing the exam the student will have professional qualifications and will be able to use the ICB designated letters after their name.
