What is a monthly payroll?

In a nutshell, a monthly payroll means that your employees get paid their regular monthly salary monthly on a date that you specify in the employment contract.

This might seem like an obvious answer, but there’s a lot more to payroll than meets the eye! Not only is payroll the list of company employees, but it also outlines the amount of money that’s due to be paid to each employee. This includes salaries, bonuses, wages, commission and statutory payments.

Payroll is extremely important, and the policies and procedures outlined by HMRC must be adhered to within the dates that it provides. We know it can be quite overwhelming to keep on top of payroll, but don’t worry. We’ve collated the need-to-know information about administering a monthly payroll, including why outsourcing it might be the best thing for you and your business!

What are the benefits of having a monthly payroll?

There are advantages to having a monthly payroll instead of a weekly or quarterly payroll. For example, a monthly payroll is often better suited for employees – it’s a valuable tool for morale. Hardly anybody will be happy waiting until the end of every quarter to get paid, yet being paid every week is sometimes too often! People would generally prefer one lump sum at the end of the month. The most important thing is that the payment terms are outlined in the employment contract.

By issuing a monthly payroll, you’ll also have enough time between paydays to organise your payments to HMRC and your employees. You might struggle to do this if you issue the payroll on a weekly basis.

In contrast to this, a quarterly payroll could provide too much time between payrolls, which could lead to lost information, uneven cash flows, and a lot of panic and stress for you! For the vast majority of cases, monthly payroll remains the best option.

How do I setup a monthly payroll?

If you decide to administer your own payroll, you need to take the following steps:

1. Register yourself as an employer with HMRC which will give you a login for PAYE online. By being PAYE registered, your employees will have their income tax and national insurance contributions deducted before it gets to their bank account.
2. Choose payroll software that can record all your employee’s details, including their salary and any deductions that need to be made. The software should ideally produce payslips for your employees as well.
3. You must collect and keep all records and information of every employee and notify HMRC of any changes – whether that be an employee leaving the company, joining the company, or changing their annual salary.
4. All of the information and payments that are recorded in your online payroll software should be provided to HMRC prior to the first payday.
5. You should then arrange to pay HMRC any tax or NICs that you owe. The HMRC tax month runs from the 6th of one month the 5th of the next.

Sounds complicated, right? It doesn’t have to be! Keep reading to find out how we can help.

Monthly vs. Fortnightly Payroll: Which is Right for Your Business?

When it comes to paying your employees, choosing the right pay frequency is crucial. Two of the most common options in the UK are making payment on a biweekly or monthly basis. Each has its own advantages and disadvantages, so it’s important to consider your business’s specific needs and your employees’ preferences. You can handle payroll whichever way you prefer, either a monthly pay frequency or more.

Monthly Payroll Pay Schedule

How it works:

• Employees receive a monthly salary payment, usually on the same day every month.
• You divide the annual salary into twelve equal payments to calculate monthly salary (payroll calculation).

Advantages:

• Simplicity: Monthly payroll is relatively straightforward to manage, especially for businesses with a small number of employees. It can improve cash management. If you want to simplify the process, this is the way to go.
• Reduced Administrative Burden: Fewer pay runs mean less administrative work, such as processing payroll, calculating taxes, and generating payslips.

Disadvantages:

• Less Frequent Pay: Employees may prefer more frequent paychecks, especially those living paycheck to paycheck.
• Potential Cash Flow Issues: For some employees, receiving a single monthly payment may not be ideal for managing their finances.

Fortnightly Payroll Pay Schedule

How it works:

• Employees are paid every two weeks, typically on the same pay date for each pay period per the frequency schedule.

Advantages:

• More Frequent Pay: Biweekly payroll can improve employee morale and financial security.
• Better Cash Flow for Employees: More frequent paychecks can help employees manage their finances more effectively.

Disadvantages:

• Increased Administrative Burden: More frequent pay runs require additional administrative work, such as processing payroll, calculating taxes, and generating payslips.
• Complex Calculations: Fortnightly payroll can be more complex to calculate, especially when dealing with overtime, bonuses, and other variable pay.

Choosing the Right Pay Frequency

The best pay frequency for your business will depend on several factors, including:

• Employee Preference: Consider your employees’ preferences and financial needs.
• Administrative Costs: Evaluate the administrative costs associated with each pay frequency.
• Cash Flow: Assess the impact of each pay frequency on your business’s cash flow.
• Compliance: Ensure that your chosen pay frequency complies with all relevant employment laws and regulations.

By carefully considering these factors, you can choose the pay frequency that best suits your business and your employees.

Using Payroll Software

To simplify the payroll process, regardless of the pay frequency you choose, it’s highly recommended to use payroll software over manual payroll. A good payroll software can:

• Automate Calculations: Accurately calculate taxes, deductions, and net pay.
• Generate Payslips: Create professional payslips for each employee.
• File Taxes: Ensure compliance with tax regulations by automatically filing tax forms.
• Manage Time and Attendance: Track employee hours and generate accurate payroll reports.
• Provide Financial Insights: Generate reports on payroll costs, labor expenses, and other key metrics.

By using payroll software, you can save time, reduce errors, and improve the overall efficiency of your payroll process.

Have you thought about outsourcing your payroll?

As you can probably tell, administering your own payroll can be a tedious and time-consuming task, not to mention that payroll software is often quite pricey. We know there are better ways for you to spend your time and money. By outsourcing your payroll, you’re saving yourself the stress of making mistakes and freeing up time to focus on running your business.