Payroll compliance checklist for growing businesses with new employees

Hiring your first employee, or adding more people to a growing team, is a positive step for your business. It usually means demand is increasing, workloads are becoming more structured and you need extra support to keep standards high. But payroll also brings legal, tax and pension responsibilities that must be handled correctly from the start.

You are not just paying someone a wage. You may need to operate PAYE, deduct Income Tax and National Insurance, report pay to HMRC, check workplace pension duties, keep payroll records and make sure staff are paid at least the legal minimum wage.

Working with Accountants in Reading can help you set up payroll properly, avoid missed deadlines and keep your records organised as your team grows.

Payroll mistakes can be expensive. They can also damage employee trust. A wrong tax code, missed pension assessment, late PAYE payment or incorrect payslip may seem small at first, but repeated errors can create bigger compliance issues later.

Why payroll compliance matters when your business is growing

Growth often makes payroll more complicated. One employee on a fixed monthly salary may be straightforward. A larger team with part-time staff, overtime, bonuses, apprentices, starters, leavers, pension deductions and statutory payments needs much tighter control.

For the 2026 to 2027 tax year, the standard employee personal allowance in England and Northern Ireland is £12,570, with the basic rate of PAYE applying to earnings up to £37,700 above the PAYE threshold. Employer National Insurance for category A employees is 15% on earnings above the relevant secondary threshold. These figures show why payroll costs need to be budgeted properly before you hire.

1. Check whether you need to register as an employer

Before you pay a new employee, check whether you need to register with HMRC as an employer. You will usually need to register if you pay employees at or above the PAYE threshold, provide benefits, or need to deduct tax or National Insurance.

Do not leave this until the first payday. HMRC registration can take time, and you need your PAYE reference and Accounts Office reference to run payroll correctly.

You should also think about whether the person is genuinely an employee, worker, contractor or freelancer. Employment status affects tax, payroll, holiday pay, workplace rights and pension duties. Getting this wrong can create problems later.

2. Collect the right new starter information

You need accurate employee details before running payroll. HMRC guidance says you should use the employee’s P45, or ask them to complete a starter checklist if they do not have a recent P45. You will need details such as date of birth, address, start date, National Insurance number, tax code information and student loan deduction status.

This information helps you apply the correct tax code and starter declaration. If the details are missing or wrong, the employee may pay too much or too little tax.

Your checklist should include:

• Full legal name
• Date of birth
• Home address
• National Insurance number
• Start date
• P45 or starter checklist
• Student loan or postgraduate loan status
• Bank details
• Contracted hours and pay rate

HMRC says employers must tell HMRC about a new employee on or before their first payday.

3. Set up payroll software correctly

Payroll software must be set up with the correct pay frequency, tax year, PAYE reference, employee details, tax codes, National Insurance categories and pension settings.

A small setup mistake can repeat every pay period. For example, the wrong National Insurance category can affect deductions. An incorrect student loan plan can lead to under-deductions. A wrong pay frequency can distort tax calculations.

You should review the setup before the first payroll run and again after the first payslip is produced. It is better to catch errors immediately than correct months of payroll later.

4. Pay at least the National Minimum Wage

You must check that every employee is paid at least the correct minimum wage for their age and status. From April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour. The rate is £10.85 for workers aged 18 to 20, and £8.00 for workers under 18 or apprentices who qualify for the apprentice rate.

This is not just about hourly-paid staff. Salaried employees can also create minimum wage risks if they work extra unpaid hours, attend mandatory training, travel between work sites or have deductions that reduce pay below the required level.

You should keep clear records of hours worked, pay rates, unpaid breaks, overtime and deductions.

5. Check National Insurance categories

Each employee needs the correct National Insurance category letter. Most employees use category A, but there are different categories for employees under 21, apprentices under 25, veterans, married women and widows with reduced rates, and employees over State Pension age.

For 2026 to 2027, employee National Insurance for category A is 8% between the primary threshold and upper earnings limit, then 2% above that. Employers pay secondary Class 1 National Insurance at 15% for category A employees above the relevant threshold.

If the category is wrong, both employee deductions and employer costs may be wrong.

6. Assess workplace pension duties

Workplace pension duties start from the day your first member of staff starts work. The Pensions Regulator says this is your duties start date, and even if you think you will not need to put staff into a scheme, you still have duties.

You need to assess workers, identify who must be automatically enrolled, communicate with staff and make employer pension contributions where required.

Your pension checklist should include:

• Choosing a suitable pension scheme
• Assessing employees by age and earnings
• Sending required pension letters
• Processing employee and employer contributions
• Managing opt-outs correctly
• Keeping pension records
• Completing re-enrolment duties when required

Do not treat pensions as something separate from payroll. Pension assessment and contribution calculations should be built into your regular payroll process.

7. Submit payroll reports to HMRC on time

When you run payroll, you usually send a Full Payment Submission to HMRC on or before each payday. This tells HMRC what employees have been paid and what deductions have been made.

If you do not pay anyone in a tax month, or you need to recover statutory payments, you may need to send an Employer Payment Summary.

Late or inaccurate submissions can cause HMRC queries and employee tax issues. A simple payroll calendar can help you stay on track.

8. Pay PAYE and National Insurance by the deadline

Your PAYE bill may include Income Tax deductions, employee and employer National Insurance, student loan deductions, Construction Industry Scheme deductions and Apprenticeship Levy payments where relevant.

HMRC says employers must usually pay their PAYE bill by the 22nd of the next tax month if paying monthly, or by the 22nd after the end of the quarter if paying quarterly. If paying by cheque through the post, it must reach HMRC by the 19th.

You should set aside payroll taxes as soon as payroll is run. Treating PAYE deductions as spare cash can create pressure when payment is due.

9. Provide accurate payslips

Employees should receive a payslip showing their gross pay, deductions and net pay. Payslips should also show hours where pay varies depending on time worked.

A clear payslip helps employees understand their pay and reduces queries. It also creates a useful record if questions arise about tax, National Insurance, pension deductions, overtime or statutory pay.

Before payslips are issued, check:

• Gross pay
• Hours and overtime
• Tax code
• National Insurance deductions
• Pension contributions
• Student loan deductions
• Holiday pay
• Sick pay or parental pay
• Net pay

10. Keep proper payroll records

Payroll records should be accurate, complete and easy to access. HMRC says new employee information used for payroll should be kept in payroll records for the current year and the 3 following tax years.

You should keep records of pay, deductions, reports submitted to HMRC, tax codes, pension contributions, employee details, statutory payments, expenses and benefits.

Good payroll records make it easier to answer employee questions, deal with HMRC, prepare year-end reports and review staff costs.

11. Plan for year-end payroll tasks

Payroll does not stop after the final monthly or weekly pay run. At the end of the tax year, you need to complete annual payroll tasks, including final submissions and employee reporting.

HMRC says the final Full Payment Submission should be sent on or before the last payday of the tax year, which ends on 5 April. Employers also need to give employees a P60 after the tax year ends where required.

If your business provides expenses or benefits, you may also need to deal with P11D reporting, payrolling of benefits or Class 1A National Insurance.

12. Review payroll before hiring again

Before you hire the next employee, review whether your payroll process is still suitable. A system that works for 2 people may not work for 10. As your team grows, you may need better software, clearer approval processes, stronger record keeping and external payroll support.

You should review:

• Whether payroll is being processed on time
• Whether employee queries are increasing
• Whether pension duties are being handled correctly
• Whether PAYE payments are affordable and planned
• Whether payroll reports are being checked before submission
• Whether holiday, overtime and statutory pay are being recorded properly

Payroll should support growth, not slow it down.

Speak to Asmat Accountants about payroll support

Taking on new employees is a major step, and payroll compliance should be set up correctly from the beginning. Clear records, accurate deductions, timely HMRC submissions and proper pension processes can protect your business and give employees confidence that they are being paid correctly.

Asmat Accountants can help your business set up payroll, manage PAYE, deal with workplace pension duties, review employee records and keep payroll deadlines under control.

Contact Asmat Accountants today to get practical payroll support for your growing business.