Must-know payroll tips for startups

WestBIC is an Enterprise Ireland partner providing hands-on startup support, funding readiness and investment preparation for early-stage founders in the west of Ireland.

Payroll can drive you mad!. If it’s not handled correctly or if you lose control of it, it can derail all your efforts as a small business owner. As such, it is the number one concern for many start up promoters who worry about getting it right.

Payroll is complex and when you add in hourly rates, pensions, maternity payments, holiday pay, dealing with Revenue etc., it becomes even more complex — but get it right and you’ll keep your employees happy and focused on their role in your growing business.

First Steps:

Business owners must first understand what an “employee” is in Ireland. Employees are individuals who are protected by Irish employment legislation, who are included on your payroll and paid under the PAYE tax system. The PAYE tax system is a method of tax deductions on employee’s salaries in Ireland so when employees are paid, employers must calculate and deduct income tax, PRSI, LPT and USC from their employees’ wages and pay this over to Revenue on behalf of the employee.

You must first register with Revenue as an employer — you won’t be able to employ staff or do payroll for your start-up before you become a registered employer in Ireland. It does not matter whether you operate as a sole trader, a partnership or a limited company — if you plan to have employees you need to register your business. You can either register for the Revenue Online Service (ROS) or open a ‘myAccount’ and this can be done through Revenue’s online registration tool — Revenue eRegistration. Alternatively, there are paper-based application options.

Wages or Salary?

An employer must decide whether to pay their employees’ wages or a salary. While many people use the terms wages and salary interchangeably, there is an important distinction between the two terms. Wages are a variable payment that an employee earns based on the number of hours worked and an hourly rate of pay. If the employee works more or less hours, the gross wages will increase or decrease accordingly. Salary is a fixed payment that an individual receives on the basis of work done annually. In general, salaried employees will not receive additional pay for hours in excess of a ‘normal working week’ but may receive time in lieu. Whether you pay wages or salaries will often determine the frequency of pay — monthly is easiest and cuts down on the administrative tasks such as running the payroll calculations, producing the reports, making submissions to Revenue and making payments from the Bank. All employees, whether salaried or waged, enjoy the same legislative protections under Irish Law.

Payroll Basics

Basically, four main things need to happen when paying employees:

• Record your employees pay, including their salary and/or wages and any other additional pay
• Calculate and record the appropriate deductions i.e., tax, pension etc., from their pay
• Produce and distribute payslips for each employee, itemising their additions and deductions
• Update and submit payments to Revenue and pay the employee.

As mentioned earlier, payroll calculations can be complex and while you could try to do it all yourself manually, by the time you’ve calculated all the various tax liabilities for each employee — PAYE, USC, PRSI etc., you’ll be pulling your hair out and will likely make mistakes — and mistakes only lead to problems down the line. If possible, build the cost of a payroll software package into your company’s budget and remove all that stress.

Payroll software will automate the whole process for you, taking care of the tax calculations, generating payslips for employees, keeping up with changes in legislation and providing information for all your payroll requirements. It will also communicate directly with Revenue, downloading any Revenue Payroll Notifications in advance of running payroll for that month and then submitting payroll details to Revenue after the payroll run. This information must be submitted monthly on or before the date you actually make payroll payments to your employees.

When it comes to managing your small business payroll, there can be a lot to consider and a lot to do, but having good systems in place and using payroll software can make life a lot easier.

Top Tip: Get it right. Your employees will expect to be paid on time and to receive the correct amount of pay.

Top Tip: Always address a payroll or pension query from an employee on the day you receive it or as soon as possible — even if you don’t have the answer, tell them you’ll get back to them. Salaries and pensions are very personal and while employees will generally wait patiently for a reply to a general query, when it comes to their pay or pension, they want an answer as soon as possible.

Top Tip: Get yourself some payroll software — it’s well worth the cost. You can’t be expected to know all the ins and outs of payroll calculations and dealing with Revenue, even keeping up with ever changing legislation is a burden you can offload to the software provider.

Top Tip: Don’t fall behind in your payments to Revenue and pension providers — catching up can be extremely difficult.

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