How to Prepare Payroll: A Beginner’s Guide

Payroll is a crucial function in any business, and it’s super important to ensure you’re running it correctly. To avoid disappointing employees or facing legal consequences, thorough payroll preparation is key. Preparing payroll involves calculating employee salaries, deducting taxes, keeping detailed records, and making timely payments to PAYE employees. 

With so much to think about, payroll preparation might seem overwhelming - especially if you’re running a smaller business or startup. The good news is that with proper planning, getting your employees the payslips they deserve can be a straightforward and manageable process. The even better news is that there are many payroll software and payment tools on the market to help you streamline every aspect of the process. 

In this beginner’s guide to preparing payroll, we’ll break down every step of the payroll preparation process, tell you how to get started, and share the best affordable payroll software and payment solutions to simplify the job. 

How to prepare payroll

Determine your payroll schedule

The first step to preparing for payroll is to determine your payroll schedule. This schedule determines the frequency of your payroll - whether it's weekly, bi-weekly, or monthly. 

When choosing a payroll schedule that’s convenient for both you and your employees, consider factors such as cash flow and payment cycles, as well as your employees’ preferences. Keep in mind that most corporate employees prefer to receive a monthly wage.

Once you’ve determined how often you’re running payroll (e.g. on the last Friday of every month), make sure you stick to your schedule to avoid any confusion or disappointment.

Gather information about your employees

Before processing payroll, you’ll need to collect some important information about your employees. 

Most importantly, you’ll need their full name, address, National Insurance number, and bank account information, as well as their tax code and other financial information (which you’ll be able to gather from their P45 or Starter Checklist).

Be sure to verify all of this information with your employee before storing it, and always keep employees’ personal data confidential and secure.

Calculate gross pay

Calculating gross pay is the next step in the payroll preparation process. Gross pay is the total amount of money an employee earns before any taxes or other deductions are taken out. 

You can work this out manually, but we recommend using time-saving payroll software like Freshpay, which will automatically calculate employees’ gross pay - as well as net pay - for you. 

Calculate taxes and other deductions

Once you've calculated gross pay, it's time to take into account taxes and other deductions. 

This includes income tax and any voluntary deductions such as pension plans and health insurance. 
We recommend consulting a tax professional or using payroll software to ensure that you're calculating taxes and deductions accurately.

Prepare payroll journal entries

Preparing payroll journal entries and keeping records of your employees’ payslips is an important part of the payroll preparation process which should not be overlooked. 

Journal entries record the transactions related to payroll in your accounting system, making it easier to keep track of payroll costs and pay HMRC the tax and National Insurance you owe them each month, and easier to prepare your annual report for HMRC at the end of the tax year.

Prepare employee payslips

Payslips are crucial documents - that are usually digital nowadays - which outline an employee's pay for a specific period. 

Payslips should detail employees’ gross pay, taxes and deductions, as well as their net pay (the amount an employee receives after taxes and deductions). 

You can use payroll software to automate your payslip creation and ensure all the right information is included every time. 

Set up timely payments

The final step in payroll processing is scheduling and making timely payments to employees. 

You can do this yourself using the Faster Payments system. Or to make things faster, safer and easier, you can use a payments solution like Crezco to make bulk payments to all of your employees and set them to repeat each month.

Always ensure that you have sufficient funds to cover payroll and that you prioritise paying your employees on time.

Stay up-to-date with payroll regulations

Finally, it's essential to stay up-to-date with payroll regulations. Tax laws and regulations around the National Living Wage can change year to year, and it's crucial to stay informed and compliant. 

Using payroll software is one of the easiest ways to make sure you’re staying compliant with new tax and payroll regulations, as the software takes all of these updates into account.

Speed up payroll preparation with time-saving software

The good news is that you can - and should - use payroll software to automate most of the steps outlined above. Payroll software helps you save hours of time every month on payroll preparation while decreasing your chance of making any mistakes. 

When it comes to choosing the right payroll software for your business, one of our top pick is cloud-based Freshpay, which offers a comprehensive and user-friendly solution that speeds up and simplifies the payroll preparation process. 

With Freshpay, you can automate wage calculations and tax deductions, saving you a whole lot of time and eliminating the risk of human error. 

Freshpay also offers a range of handy features such as employee self-service portals, tax compliance tools, and customizable reporting, allowing you to tailor the software to your business' needs. 

Freshpay's software is designed with ease of use in mind, making it an excellent option for beginners or any business looking to streamline its payroll preparation process.

How Crezco can help

Once you’ve prepared to run payroll using a solution like Freshpay, you can use an open banking platform like Crezco to quickly and easily pay all of your employees at once. 

All you need to do is import data from your payroll software, then quickly add your contacts and bills, and you can pay your entire team in one single click. 

Crezco is the perfect way to pay employees in the UK, and is especially useful if you’re managing an international payroll, as it allows you to directly pay overseas employees in 37 different currencies (and 180 countries) from one account - with no high rates or hidden fees.

Plus, with Crezco, you’ll benefit from top security, fast payments and priority support. 

You’re ready to prepare payroll

Payroll preparation can seem overwhelming to beginners, but with the right knowledge, tools and software, preparing to run payroll can be super straightforward. 

By following the steps outlined in this guide, you can be sure that you’re paying your people, efficiently, accurately, and in line with tax regulations and government guidelines. 

Before you get started, you can find out more information about setting up payroll on the government’s official website, and learn more about how to streamline your payroll process with Freshpay and Crezco.