POSTED: January 09 2023
The Payroll and Pensions Guide that All Startups Need to Read | advo

The Payroll and Pensions Guide that All Startups Need to Read | advo

Hundreds of thousands of businesses are started up in the UK each year. If you’re among the number of entrepreneurs who have decided to embark on such a venture, then it’s quite likely that you haven’t thought about payroll and pensions yet. After all, why would you think about the nitty-gritty and something that appears to be so very far into the distant future?

It’s terribly easy to neglect this side of your organisation when it’s in the infancy stage for the simple fact that the overall prospect is so invigorating. People generally become lost in the excitement of using one’s knowledge & experience to establish their very own platform. A platform where they can market their passion by offering a unique product or service to a given industry.

However, with all positive opportunity that the above entails, there is likewise room for significant oversights. Which, if not carefully prevented, leads to fundamental problems that could signal the steady decline of your new business’ longevity.

Payroll and pensions make up some of these common blunders. And, as an employer, it is one of your chief responsibilities to fulfil the requirements that are in place pertaining to them. If your business plan is to succeed, then you need to define a coherent system. This matter can be complex at first, it’s for this reason why we’ve put together our guide. Throughout, we’ll go over everything startups need to know about payroll and pensions.


HM Revenue and Customs (HMRC) is a department of the UK Government that is responsible for tax collection and the administration of regulatory regimes. As such, it’s vital that your employment practices concerning payroll and pensions are accordant with their set standards. The first step being, to register as an employer before the first payday.

Secondly, any time an employer takes on a new employee, it is their obligation to inform HMRC of the fact. The official way to do this is by obtaining a copy of an individual’s P45 from their previous job. This is a document which includes essential details relating to their National Insurance, tax, salary, full name, and student loan deduction status (if applicable). Once you’ve got this document, it should then be sent directly to HMRC, where they will use it to check the employee’s tax code and National Insurance band. In essence, how much tax, National Insurance, and student loan repayment contributions you must provide HMRC with on behalf of that specific employee. In addition, you will also need your employee’s date of birth, gender, full address, and start date before you can afford them a proper starter declaration.

There is also the system that businesses operating in the UK must use to send relevant contributions to HMRC. This is known as Pay As You Earn, or PAYE. The system guarantees that employers take the necessary amount of Income Tax and National Insurance out from an employee’s wage or pension before it is eventually paid to them, all of which should be visible within the payslips you produce every week or month. For startups who are running their own payroll process, HMRC-approved software that facilitates the gathering of PAYE information in ‘real time’ before it is justly forwarded is a requirement. Moreover, relevant reports have to be sent alongside this, in particular, a Full Payment Submission (FPS). Such reports contain details which provide HMRC with all of the payment information that applies to each separate member of your staff.

UK Payroll Legislation

To ensure that your startup’s internal HR functions are complying with payroll procedures customarily, it’s integral that you are familiar with the UK law regarding paying your employees so that you fully understand your duty as an employer. As a starting point, you can take a look at what the National Minimum Wage rate is for each age bracket. As of April 2022, these figures currently apply:

  • £4.81 per hour for 16-17 year olds.
  • £6.83 per hour for those aged between 18-20.
  • £9.18 per hour for 21-22 year olds.
  • £9.50 per hour for those aged 23 or over (National Living Wages rate).
  • £4.81 for apprentices under the age of 19 and those above who are in the first year of their apprenticeship.
  • £4.81 for workers under the age of 18.

This is salient in the context of PAYE, namely, because you need to pay your employees through PAYE if they are earning £123 or above on a weekly basis – the equivalent of £533 a month, or £6,396 a year. However, it’s important to bear in mind that the above figures, as well as other aspects of employment law, change each year. Consequently, employers are obligated to keep up-to-date accordingly. This also includes other forms of pay that workers are lawfully entitled to such as statutory sick pay, maternity pay, and paternity pay.

On top of this, the foundational landscape of working life is evolving similarly, and at an exponential rate. For instance, we’re currently in the midst of a gig economy. I.e., a labour market that is heavily supported by temporary and part-time positions, typified by the prevalence of freelancers and independent contractors, as opposed to permanent full-time employees. This carries substantial relevance for startups especially, given that newly-founded businesses typically comprise an array of both temporary & permanent employees. This ultimately means that there’s an inherent degree of complexity surrounding who qualifies for payroll and pension schemes within such an organisation. Relatively simply, It is the case that workers are defined as those who are under a contract of employment, and are performing work for a business distinct from themselves. The same also goes for individuals who are classified as agency workers, but who have been put onto a contract by an independent business. Having said this, the laws around the gig economy are rapidly changing, and so it’s up to employers to stay adequately informed, while acting out appropriate responses.


Pension plans are often considered to be an employee benefit, and more generous plans should be regarded as such. Yet, it is mandatory for employers to supply eligible employees with a workplace pension. The UK Government introduced The Pensions Act in 2008, which is designed to protect employees when they are no longer able to work. Followingly, in 2012 automatic enrolment was ushered in to help more people save for a pension so that they could comfortably financially support themselves in retirement.

The initiative emerged out of a lot of people overlooking the need for a solid pension plan, particularly employees who were fairly young. Of course, it is possible for individuals to opt out of auto-enrolment, however, this is regularly advised against. Reason being, that a workplace pension represents a rather shrewd financial investment because there is an intrinsic gain attached, chiefly owing to it functioning so as to afford tax relief.

The total minimum contribution to a workplace pension, as of April 2019, is 8% of an employee’s overall earnings which consists of their salary or wages, bonuses & commission, overtime, statutory sick pay, and maternity, paternity, or adoption pay. This latter value consists of 5%, as contributed by the worker, alongside an additional 3%, as contributed by the employer. It is a requirement for employers to make this minimum contribution, yet workplace pensions are very dynamic, and offering a more generous package has been shown to improve employee wellbeing, an important factor if you want to securely retain top talent within your startup.

As an employer in the context of auto-enrolment, it’s necessary for you to discern those among your employees who are eligible. As per the governmental guidelines, an employer must contribute the minimum amount for each worker who is aged between 22 and the state pension age, works in the UK, and earns more than £520 a month, £120 a week, or £480 over 4 weeks. If an employee earns anything less than, or these amounts exactly, then the employer is not obliged to make the minimum contribution. It’s also worth noting that there are those termed ‘entitled workers’, i.e., someone who is aged between 16-74 and receives less than the lower earnings threshold. Such individuals can apply to be put on a workplace pension but you, as an employer, are not required to put money into their pension pot. Furthermore, employees have the option to use a ‘salary sacrifice’ to fund their pension, where a worker gives up a portion of their salary to be deposited straight into their pension. This scenario can lead to both the employee and the employer paying less tax and National Insurance. If you have contracted an individual classed as a ‘worker’, and they are on sufficient payroll, it’s likely that you will need to automatically enrol them onto a workplace pension scheme.


Employers’ responsibilities towards their employees’ pensions don’t end after they have prepared auto-enrolment and enlisted each eligible individual accordingly. Re-enrolment is a related process that is to occur every three years. It is where businesses conduct a review across their payroll which necessitates detecting those employees who left the workplace pension programme, and thereafter, placing the standout members back into it.

Markedly, the time of re-enrolment is chosen by the business itself, employers are required to set a specific date. This fact does not vary depending on how many payrolls a business is running, and so it’s crucial that the selected date aligns with multiple pay frequencies. Further still, after fulfilling re-enrolment, employers are then obligated to transmit an official communication to their workers within six weeks, one which documents any associated changes. Whether or not any staff have been affected by re-enrolment, employers must also complete a subsequent re-declaration of compliance to demonstrate that their legal duties have been met. Essentially, this is a two-step process that has to be carried out.

Outsourcing Payroll

As is evident from all we’ve discussed so far, managing payroll and pensions, even for a business that has just started out, is a deeply complicated task. Each facet demands time-consuming administration, something that isn’t practical if you’re attempting to lead an organisation simultaneously. Not to mention, if you fail to remain compliant with the laws & regulations that are in place, significant penalties will follow. Namely, you’ll be fined if you fail to submit FPS reports to HMRC when they’re due, and missing or incorrect payroll reports have the potential to affect any income-related benefits your employees are receiving. What’s more, you’ll likewise incur a fine if your workplace pension operations aren’t carried out, as stipulated by The Pensions Regulator.

Naturally, the overall prospect is an overwhelming one, especially considering that your business’ reputation is on the line. This is the primary reason why most startups choose to outsource their payroll to an external provider, so that a large portion of the responsibility is lifted from your shoulders. It’s essential that smaller businesses have such assistance if they are to focus their resources as they should, on growth and productivity.

But it’s not just about seeking a provider at random, you need a specialised team who use cutting-edge software that integrates both payroll and pensions procedures so that the process is as streamlined as possible. Our advo-one platform is HMRC-approved software that satisfies your every requirement. Here at advo, we are a dedicated team consisting of experts who are geared to ensure that you avoid any costly mistakes related to payroll and pensions. If you’re interested in experiencing the multiple benefits to be had by hiring our services, then feel free to get in touch today! Thank you for reading our guide, for more related content you can head over to our news page which we update regularly with equally useful information.