Chapter 8

How to do payroll

If all you had to do was pay staff, it would be easy. But there’s more to it than that. Let’s look at how to do payroll.

A bookkeeper at a desk with a coffee cup and a laptop

What is payroll?

Payroll involves calculating employee pay, deducting things like tax and retirement contributions, then distributing money to all the right people by the right dates. You also have to show all your workings to the government so they can make sure you’re doing everything correctly.

Why does it matter?

Payroll is critical to keeping employees happy, but it’s also important to keep the government happy. There are lots of regulations, and failure to comply can result in fines.

How to manage payroll

You start by calculating pay for each employee, according to the terms of their contract. And then you set about making deductions in the right order.

Flow chart of how employee pay is calculated

It’s up to you to channel the money to all the right recipients by the agreed dates. Make sure you understand when the money is due to each party, and transfer it on time. Learn more about how to manage pay runs.

Modern payroll management

Payroll software can automatically calculate pay and deductions, create payslips and generate reports for HMRC. If you pay by the hour, you can get employees to clock in and out of shifts on their phone and set up the app so the data flows into an online timesheet.

Because the tax status of individual employees can change for all sorts of reasons, payroll can become an admin headache. It’s common for businesses to outsource payroll.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

How to do bookkeeping

Bookkeeping includes everything from basic data entry to tax prep. Let’s look at the core jobs and see how they’re done.

Download the guide on how to do bookkeeping

Learn about the eight core bookkeeping jobs, from data entry to reporting and tax prep. Fill out the form to receive the guide as a PDF.

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