Getting payroll options right is a key decision

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MANAGING payroll is a key task for any employer as it involves paying employees correctly, making deductions for tax and National Insurance and keeping proper records.

The government-backed advice service for companies, Business Link, says there firms can choose to handle payroll in-house or outsource it.

A quick flick through the some of the payroll issues on the HMRC website makes me think that anyone who can do all that must be either brilliant or a mad technophobe, or perhaps both.

There are significant advantages to using electronic payroll software or, indeed, to outsourcing payroll functions.

Using software saves time, cuts down on errors and makes end-of-year payroll tasks much easier to complete now that online filing of the Employer Annual Return is a requirement for almost all employers, says Business Link.

Business Link, at www.businesslink.gov.uk has produced a guide to help employers make the right choice when choosing a payroll system. The three options are:

> Outsourcing to an accountant or specialist agency

> Use specialised payroll software to store employee records on a computer and calculate PAYE (Pay As You Earn) and National Insurance contributions (NICs) automatically. Some software is free, including from the HM Revenue & Customs (HMRC).

> Do the number-crunching yourself keeping written records of each employee’s details, and calculate PAYE and NICs.

At the end of the tax year employers will you’ll need the figures from payroll records to complete and file the Employer Annual Return.

One important detail to remember is that companies remain legally responsible for deducting the correct amount of tax and NICs and for paying it over to HMRC.

Business Link says it might make business sense to ask your accountant if they can provide payroll services. They’ll already be familiar with your business and might offer you a competitive rate as part of a package of services. Alternatively, you could outsource payroll to an agency.

Either way, you can normally specify the level of involvement you want from them. For example, you may choose to completely outsource your payroll or you may simply wish them to provide you with your weekly/monthly payslips.

However, Business Link warns that before handing over payroll operations, businesses need to consider whether the service provider can tailor a suitable package, whether they’re experienced with the type and size of business, whether they can supply weekly/monthly payslips, and provide weekly, monthly and annual returns and of course charges.