What is Payroll?


Definition of payroll

Payroll is the process of an organisation paying their employees. An organisation, normally a limited company, would need to register for a payroll scheme before they onboard their first employee.

Payroll is usually run on either a weekly or monthly basis, the process involves producing payslips, paying employees and reporting earnings to HMRC and other relevant authorities - making payments for Tax, National Insurance and Pension contributions. It is essential that your payroll is both timely and accurate, if not you may be liable to penalties from HMRC or The Pension Regulator!.

Who is classified as an employee?

An employee is a person working for your organisation under an employment contract. So, if you're a director, are you classified as an employee?

The answer is: not necessarily but in many cases you would benefit from putting yourself on payroll. Paying yourself a salary is can reduce both your personal and organisation's tax bill. Check out our post on the most tax efficient way to pay salaries for more.


Salary refers to the payment you make to employees for their work. This is normally calculated on either an hourly or a fixed regular payment basis. A fixed monthly payment is based on a yearly amount - for example if an employee’s contract states their annual salary is £24,000, their gross month salary will be £2,000.

The amount an employee receives in their bank account each time you run payroll will typically be less than their gross salary, due to deductions the employer has to make. This ending figure is the net salary.


The typical deductions are Income Tax, National Insurance and Pension contributions. All these deductions are based on the amount the company’s employees earn. For the information on Tax, National Insurance and Pension bands and rates click here.

Employee benefits

Employee benefits are non-cash items or services provided to employees in addition to their normal salary. The most common employee benefits in the UK are Health and Life Insurance. Some benefits receive special treatment and need to be reported as part of your payroll.

Legal obligations

First you must tell HMRC that you are an employer. It is a relatively straightforward to process to register for Payroll (often called PAYE). Once registered, you are obliged to inform them of any payments made to employees by submitting a Real Time Information (RTI) file. Based on this submission you will then need to pay the correct tax and National Insurance to HMRC.

You must also provide your employees with Payslips for each payment they receive, a P60 at the end of the tax year and a P45 when their employment comes to an end. The last two documents are types of summaries of earnings in the year or employment.

As an employer you are also responsible for meeting your legal duties for automatic enrolment with the Pension Regulator. In short, if you pay employees, you likely have pension obligations to fulfil. Click here to learn more about your workplace pensions obligation or chat to your accountant.

How to run payroll

You can run your payroll yourself using software like Xero (which has a payroll feature) or dedicated software like BrightPay which is slightly easier to use. There is a slight learning curve and ongoing deadlines to monitor.

In general we recommend asking your accountant to run your payroll. This frees up time to spend growing your business and minimises the risk of mistakes that can lead to penalties. You also get to skip a niche learning process and can relax knowing it is handled by a professional.

How we can help

At Ecommerce Accountants, we have a dedicated payroll department with extensive payroll experience. We use dedicated payroll software to ensure your payroll is accurate, timely and in accordance with the appropriate legislation.

This allows you to focus on running your business without the need to worry if you are complying RTI and Auto-enrolment duties. We look after payroll for both small and large businesses and run payrolls on a weekly, monthly and yearly basis. 

Please contact us to learn more about how our payroll team can assist you and your business.

More posts in this category

You might also like

See how we can work together

Get in touch today. Talk to one of our accountants to see how we can help save you time.

Get in Touch
Thank you! You'll receive an email straight away from us with next steps and a link for booking a call.
If you've not received it, please check your spam.
Oops! Something went wrong while submitting the form.