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Payroll is the compilation of amounts of money due to employees of an Organisation. This involves the calculation of amounts earned, the application of all deductions and the payment of net amounts due both to employees and Tax Collection Authorities.

Payroll is an essential and vital part of all businesses because:

* Employees expect to receive a net amount of pay that reflects their full entitlement after authorised and statutory deductions have been made.

* Government departments authorised to collect taxes expect payroll calculations to be correct. 

* Labour costs form a large part of businesses' overhead expenses and must be accurate in order that profit calculations are correctly ascertained.

A payroll clerk or administrator has quite a responsibility to ensure accurate calculations are made and have to take into account the following:

Income Tax and National Insurance Contributions

Everybody whose income is in excess of a certain figure, which is fixed by the Government, must pay Income Tax. This rule extends to senior citizens, pensions, dividends and interest from investments, rents received from property leases and benefits in kind.

National Insurance Contributions

National Insurance Contributions (NICs) are a form of taxation intended to fund state welfare benefits such as:-

* Unemployment benefit.

* Retirement pensions.

* Sickness benefits.

* And other forms of state benefit.

Calculating Gross Pay

Hourly Rate

Workers are paid an agreed rate for every hour, or part thereof that they work, Usually, total required hours per day or per week are agreed and any time worked in excess of these hours attract extra payment, known as overtime.

We also have to take into account:

Bonus Payments

Commission

Other additions to pay

Wages and salaries are often supplemented by benefits of another nature.

These are very varied but might include :-

* Private Health Insurance.

* Company Car.

* Payments for travel from home to work.

* Staff share schemes

* 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 either weekly or monthly and again generally weekly payments are classified as Wages whilst monthly are classified as Salaries.

Personal Allowance

Everyone is entitled to a personal allowance - this is the amount of income that someone can earn before they start to pay tax. Note that income includes earnings from work, pensions, interest on investments, dividends, rental from property etc. This personal allowance can also be referred to as Tax Free Pay

Tax Codes

Everyone who works is given a tax code by HMRC. The tax codes are usually made up of a letter and numbers and is used to calculate the personal allowance and the taxable pay. The letter simply shows how it should be adjusted following any changes announced in the Budget. It does not affect the amount of tax you pay.

Restriction on age allowance for single persons

* Age allowance for married couples

* Emergency Tax Codes

These are used when someone joining the payroll is unable to provide information concerning code number or details of previous earnings by means of a Form P45. The emergency code is equivalent to a single persons allowance but operated on a week 1 or month1.

SSP or Statutory Sick pay, Maternity Pay, Student Loan repayments are amongst other elements that a Payroll administrator has to take into account and calculate an employee's wages and stoppages.

Employers Contributions

Besides paying employees a gross sum and employer also has to make National Insurance payments to HMRC over and above what is paid to the employee. This is usually around 1% more than 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 the above is only a summarised version of what is involved. HMRC have offered incentives for companies who switch from Manual Payroll to Computerised 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 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 wishing to gain recognised qualifications it is advisable to start at the beginning by learning the basics and administrating Payroll in the traditional manual method, and then progressing on to learning the Sage Computerised Payroll package. Training Link provide both the ICB Diploma in Payroll Management courses and also the stand alone Sage Payroll training Courses. The diploma course takes around 50 hours to complete and on passing the exam the student will have professional qualifications and be able to use ICB designated letters after their name.

Up to date information on all payroll legislation can be found on the HMRC web site

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