Hiring new employees is an exciting time for any growing company. With more people on board, not only can you can expand the range of services and products you provide, but you can start shaping your company culture and the direction your business takes in the future. However, as you take on more staff, you need to make sure that your payroll is kept up to date.
An important aspect of the hiring process is settling remuneration – that is, how much you intend to pay the people who work for you. This quantity can vary depending on a variety of factors, such as your employee’s job role and responsibilities, their seniority and how long they’ve been at the company.
Keeping track of employees’ salaries and updating HMRC of any changes is critical when any contractual changes are made. Salary raises usually mean an increase in the total amount of tax the employee needs to pay too, making keeping on top of your company’s payroll system a high priority.
A salary is a regular payment made by a company to members of staff for the worked carried out over a set period of time. You, as the employer, will decide on both the hours the employee will work and the total amount they will earn before the employee starts at your company. Payroll, on the other hand, is a record that keeps track of employees’ income and tax deductions.Whether you pay your employees their salaries on a weekly, biweekly or monthly basis, their payslips will detail the amount they have earned each month, as well as outlining any tax deductions that have been made. Your company’s payroll will also include this information, but will list the information for every other employee in the company too.You will need to send the payroll information to HMRC on a regular basis for tax purposes. This article will tell you how to do this, as well as which taxes should be deducted from salaries and how you can keep track of them all.
What is a salary?
As noted above, salary is a regular payment to the employees of a company made in exchange for their time and work. No more than a month should pass between each payment, although as the business owner you decide how often to issue your employees’ payslips.Salaried workers, including both full-time and part-time employees, are contracted to earn an annual salary, a fixed amount each year for a predetermined number of hours worked that is outlined in their employment contract. This may entail flexible working hours, offering employees a choice on how they fit their designated hours into each day and week. For example, you may allow your employees to work longer hours one day so that they can finish earlier on another.Alongside the rate of pay, employment contracts will also cover how much holiday salaried employees can take each year. This is set at a minimum of 5.6 weeks, which translates to at least 28 days for a full-time employee, but you can decide to offer your employees a larger holiday allowance if you choose. Our article on holiday pay covers exactly how to pay your employees when they’re away on vacation.
What taxes are paid on a salary?
Employees on salaries have to pay regular tax on their earnings, including PAYE (Pay As You Earn) deductions such as Income Tax and National Insurance contributions. Each employee will have a tax code that is based on how much they earn, which determines how much tax should be deducted from their salary each month. You will need to give your employees a payslip every payday. This should detail their total income, any statutory leave they have taken and the taxes deducted. You can build your own company’s payslip using our free downloadable payslip template.The table below states how much Income Tax an employee needs to pay each year (from the period 6 April to the following 5 April). How much an employee earns will determine the percentage that they need to pay.
| Tax Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £150,000 | 40% |
| Additional rate | Over £150,000 | 45% |
Employees also have to pay a National Insurance contribution, which is dependent on their employment status and how much they earn. The amount that your employees pay on National Insurance contributions in the 2021/2022 tax year is shown in the table below. This information will need to be included in your company payroll.
| Salary | Class 1 rate |
|---|---|
| Less than £9,568 | 0% |
| £9,568 to £50,270 | 12% |
| £50,270 or more | 2% |