So, you’ve founded a business, proved your idea has potential, and now you’re ready to bring someone on board. But how to setup payroll for these first employees? It’s one of the most common questions UK founders ask once they reach the hiring stage. Paying employees isn’t just about transferring money to their bank accounts; you’ll need to register with HMRC, follow payroll rules, and make sure you meet all your employer responsibilities.
The good news is that payroll doesn’t have to be a headache. With the right payroll system and clear guidance, you can get set up quickly, stay compliant, and give your employees confidence in how they’re paid. This guide walks through the process step by step, from PAYE registration to workplace pensions, expenses and benefits, and beyond.
First time running payroll?
If it’s your first time dealing with payroll, the process may seem daunting. You’ll need to check if you need to register as an employer, understand how PAYE works, and be aware of deadlines.
Many business owners are surprised at how much more there is to payroll than just paying wages. For example, you must provide payslips, apply the correct tax code, and handle other deductions like student loans. For a small business, getting it right the first time saves future headaches.
Check before you register
The first step is to check whether you need to operate PAYE. If you employ anyone earning at or above the national minimum wage, you almost certainly do. Even if you hire freelancers or staff with a different employment status, it’s worth confirming your responsibilities with HMRC.
To manage PAYE, you’ll need a login for PAYE through HMRC’s online portal. This login gives you access to submit reports and view your employer account. Keep the credentials safe, as they’ll be needed every time you run payroll.
Employer responsibilities
Employers in the UK are responsible for much more than just paying wages. You must:
- Deduct Income Tax and National Insurance Contributions (NICs) from salaries
- Keep accurate payroll records
- Submit Real Time Information (RTI) to HMRC every pay period
- Enrol eligible staff into a workplace pension
These responsibilities continue for as long as you employ people, and failure to comply can result in penalties. Think of payroll as part of your business infrastructure rather than an optional extra.
Step by step registration with HMRC
The HMRC registration process is relatively straightforward but has a few moving parts.
- Register as an employer on the HMRC website.
- Receive your PAYE reference number (this can take up to 5 working days).
- Choose your payroll system.
- Collect employee information, such as bank details, P45 or starter forms, and contact information.
- Record pay and deductions from the very first payday.
If you run a limited company, directors are classed as employees too, so you’ll need to add them to the payroll system.
Workplace pensions
Workplace pensions are a legal requirement in the UK under the auto-enrolment rules. As an employer, your pension responsibilities include:
- Assessing staff for eligibility
- Enrolling them into a qualifying pension scheme
- Making minimum contributions
- Communicating with employees about their options
Even a small business must comply with workplace pensions duties, and the Pensions Regulator can impose fines for non-compliance. Read our quick guide here
Liability insurance and compliance
Employers must hold valid employers’ liability insurance. This protects your business if an employee becomes ill or injured at work. It is part of the broader compliance landscape alongside payroll.
When setting up payroll for the first time, make sure you view compliance holistically. Payroll, liability insurance, pensions, and accurate record keeping all work together to keep your business on the right side of the law.
Expenses and benefits section
Payroll isn’t only about salaries. Many businesses provide expenses and benefits that must be reported to HMRC.
- Expenses: Some expenses can be reimbursed tax-free if they meet Section 336 rules (i.e., they are incurred wholly, exclusively, and necessarily for work).
- Benefits: Other perks, like company cars or health insurance, are classed as benefits in kind. These are reported through forms P11D and P11D(b).
Failing to manage expenses and benefits correctly can lead to unexpected tax bills for both employers and employees.
Employer Payment Summary (EPS)
Alongside the main Full Payment Submission (FPS) that reports salaries to HMRC, you may also need to submit an Employer Payment Summary.
The EPS is used to:
- Reclaim statutory payments such as maternity or sick pay
- Apply the employment allowance to reduce your NIC bill
- Declare that no employees were paid in a given tax month
Many small businesses overlook the EPS, but it’s an essential part of staying compliant.
Pay and deductions
Every pay period, you must record pay, deductions, and other adjustments. These may include:
- Income Tax and NICs
- Pension contributions
- Student loan repayments
- Statutory payments like sick pay or parental leave
- Other deductions such as child maintenance orders
Accurate records protect both you and your employees and make year-end reporting much simpler.
Workplace payroll system
Choosing the right payroll system is one of the most important decisions you’ll make. Good software should:
- Calculate pay and deductions automatically
- Submit RTI reports directly to HMRC
- Provide payslips accessible for employees through a secure portal
- Integrate with pensions and expenses
Modern payroll systems save hours of admin each month and reduce the risk of mistakes – we obviously recommend Aigence it will save you a lot of time. Try here
Next tax year planning
Payroll isn’t a one-off setup. Each April, new tax thresholds, NIC bands, and minimum wage rates come into effect. Preparing for the next tax year means:
- Updating employee information
- Checking new rates against your payroll system
- Reviewing deductions and allowances
- Making sure your processes are up to date
Small errors can compound over time, so it pays to get things right at year-end.
Responsibilities beyond payroll
Your responsibilities don’t stop at running payroll. Employers must also:
- Keep records for at least 3 years
- Check employment status regularly, basically it is on you to check that freelancers aren’t in fact just employees being paid as freelancers.
- Make reasonable adjustments for employees with disabilities or health conditions
- Monitor eligibility for workplace pensions
- Apply the employment allowance where applicable
Payroll is part of a bigger picture of business responsibilities, all of which need to be aligned.
Making payroll accessible for employees
Employees expect clarity and transparency. Providing payslips, pension records, and tax details in a way that is accessible for employees helps build trust.
Self-service portals in solutions like Aigence reduce queries to HR or finance and empower staff to manage their own information. It also means fewer interruptions for business owners juggling multiple priorities.
Payroll doesn’t have to be complex
Payroll is often seen as admin, but it’s really about people and responsibilities. Getting it right means your employees are paid accurately, on time, and with transparency.
A good payroll system will guide you step by step, automate submissions, and manage deductions in the background. Whether you’re running a limited company with handful of employees or scaling a business to hundreds of staffers, the same principles apply.
Remember: compliance is non-negotiable, but with the right setup payroll becomes a simple, repeatable process that supports your business growth.
