A step-by-step guide to setting up payroll for the first time in the UK

Starting payroll for the first time can feel like a lot of boxes to tick.

You need to register as an employer, set up PAYE, collect the right information from your employees, work out tax and National Insurance, deal with workplace pensions, send reports to HMRC, and make sure everyone gets paid correctly and on time.

And that's before you've even run your first pay run.

The good news is that you don't have to figure everything out at once. Once you break payroll down into a few clear steps, the process becomes much easier to manage.

This guide walks you through how to set up payroll for the first time in the UK, what you need to do before your first payday, and how payroll software such as Zoho Payroll can bring the different pieces together.

What do you need to set up payroll in the UK?

Before you pay your first employee, there are a few things you need to have in place. At a high level, you'll need to:

1. Confirm who you're employing and what you'll pay them

2. Register as an employer with HMRC and set up PAYE

3. Choose how you'll run payroll

4. Set up your workplace pension responsibilities

5. Collect the information you need from each employee

6. Set up your pay schedule and payroll settings

7. Add your employees to the payroll

8. Run your first payroll and calculate pay and deductions

9. Send your FPS to HMRC

10. Pay your employees and provide payslips

11. Pay the tax and National Insurance you owe to HMRC

12. Keep your payroll records and stay on top of your ongoing reporting

Some of these steps happen only once. Others become part of your regular payroll routine. Let's go through them one by one.

Step 1: Decide how you'll run your payroll  

Before you start entering employee information or calculating salaries, decide who will actually manage your payroll.

You can:

• Run payroll yourself using payroll software

• Have an accountant or payroll bureau run it for you

• Use a payroll service that manages some or all of the process on your behalf

If you run payroll yourself, you'll need software that can calculate pay and deductions and report payroll information to HMRC. HMRC also recommends choosing software that supports the payroll tasks you need, such as payslips, pension deductions, different pay frequencies, and EPS submissions.

Zoho Payroll brings these tasks together in one place. You can set up pay schedules, employee tax information, work locations, earnings and deductions, and then use the same system to process payroll and manage your statutory reporting. 

If you're switching from another payroll system rather than setting up payroll from scratch, Zoho Payroll also supports prior payroll information, which can help you bring existing payroll history into your new setup.

Step 2: Register as an employer with HMRC  

If you're employing staff, you'll normally need to register as an employer with HMRC and set up PAYE.

You should do this before your first payday, and you cannot register more than two months before you start paying people. Once registered, HMRC sends you your PAYE reference number and Accounts Office reference, which you'll need when setting up your payroll software.

The registration process is separate from simply creating an account for your business. You're registering as an employer so that you can report employee pay and deductions and pay the tax and National Insurance you owe.

Once you receive your PAYE details, keep them somewhere accessible. You'll need them when you connect your payroll software to HMRC.

Step 3: Set up your workplace pension  

PAYE is one part of setting up payroll. Workplace pension duties also need to be considered when the first employee starts work.

You need to assess your employees and determine who needs to be automatically enrolled into a qualifying workplace pension scheme. In general, eligible employees are workers aged between 22 and State Pension age who earn at least £10,000 a year and ordinarily work in the UK.

The next step is to choose a pension provider and set up the appropriate contribution arrangements. Once the pension scheme is in place, payroll needs to account for both employee and employer contributions and apply the correct deductions during each pay run.

Zoho Payroll supports multiple pension providers and pension groups, along with pension enrolment and contribution methods including Relief at Source, Net Pay Arrangement, and Salary Sacrifice. Pension contribution reports can also be exported for submission to the relevant provider. 

This keeps pension contributions as part of the payroll process rather than treating them as a separate calculation.

Step 4: Decide your pay schedule  

Your pay schedule determines when you'll run payroll and when employees will receive their salaries. Common options include:

• Weekly

• Fortnightly

• Monthly

It's worth deciding this before you set up your employees because the payroll schedule becomes part of the foundation of your pay run.

Zoho Payroll supports the three types of pay schedules, so you can choose the routine that works for your business. You can also set up a work calendar to keep your payroll schedule organised. 

Once you've settled on a schedule, try to keep your payroll calendar consistent. Changing pay dates frequently can create unnecessary confusion for both your payroll administrator and your employees.

Step 5: Gather the information you need from your employees  

Before you can calculate someone's pay, you need the right information about them. For a new employee, you'll generally need details such as:

• Full name and address

• Date of birth

• National Insurance number

• Start date

• Tax code information

• Salary or hourly rate

• Bank details

• P45, where applicable

• Student or postgraduate loan information, where applicable

• Workplace pension information

If your new employee doesn't have a P45, you'll need to use HMRC's starter checklist to collect the information required to work out their tax code. You should also check whether they need to repay a student loan.

You'll need to tell HMRC about the employee through your FPS on or before their first payday.

Keep employee information in one place  

This is one of those areas where a little organisation at the beginning can save you a lot of back-and-forth later.

Maintain employee profiles in Zoho Payroll containing their tax and payroll information, compensation details, work location, and other relevant details. You can also assign predefined roles and permissions if more than one person will be involved in managing payroll.

And when employees need to check their own information, they can use the employee self-service portal through the web or mobile app to access their profile, tax details, pension summary, and payslips.

Step 6: Set up employee pay and deductions  

Not everyone on your payroll will necessarily be paid in the same way. You may have salaried employees, hourly employees, people who work overtime, employees with variable earnings, and others with recurring deductions. Your payroll setup should account for all of these.

For example, you might have:

Zoho Payroll lets you configure earnings and deductions, including one-time and recurring amounts. You can also create custom salary components, manage overtime, salary revisions, and Attachment of Earnings Orders. 

This is useful because payroll rarely stays exactly the same from one month to the next. Someone gets a salary increase. Another employee works overtime. Someone receives a bonus. A deduction starts or ends.

Your payroll system should be able to accommodate those changes without forcing you to rebuild the entire payroll structure.

Step 7: Set up tax and National Insurance information  

Tax and National Insurance form a central part of each payroll calculation. The relevant employee tax information, including the tax code, needs to be recorded so that the correct Income Tax is deducted from pay. Payroll also needs to account for both employee and employer National Insurance contributions.

HMRC requires employers to report employee payments and deductions through payroll, with the appropriate tax and National Insurance amounts calculated for each pay run.

Zoho Payroll automatically calculates PAYE and employee and employer National Insurance contributions as part of the payroll process. Other deductions, including student and postgraduate loan repayments, workplace pension contributions, and custom deductions, can also be incorporated into the same pay run.

This brings the different payroll calculations together in one place, with the relevant deductions reflected in the employee's pay and the employer's payroll liability.

Step 8: Add statutory payments and benefits where applicable  

Not every payroll will include statutory payments or taxable benefits from the outset. Over time, though, these can become part of the regular payroll process.

An employee may go on sick leave or take maternity leave. The corresponding statutory payments need to be calculated and reported correctly through payroll.

UK payroll may therefore need to handle:

• Statutory Sick Pay

• Statutory Maternity Pay

• Statutory Paternity Pay

• Statutory Adoption Pay

• Statutory Shared Parental Pay

• Statutory Parental Bereavement Pay

• Statutory Neonatal Care Pay

• Statutory Redundancy Pay

There are also Benefits in Kind to consider. Taxable benefits provided to employees, such as certain mileage or entertainment-related benefits, may need to be recorded and included in payroll reporting.

Zoho Payroll supports these statutory payments and Benefits in Kind, along with Employment Allowance and Small Employers' Relief. This means these calculations can be handled within the same payroll system as regular salary, tax, National Insurance, and pension contributions. 

The first payroll may only involve basic pay and standard deductions. Setting up the right capabilities from the beginning means the payroll doesn't have to be rebuilt every time an employee's circumstances change.

Step 9: Set up your payroll users and permissions  

If you're the only person managing payroll, this might seem like a small detail. But if payroll will be handled by an HR manager, finance team, accountant, or another administrator, decide early who should be able to access what.

Payroll contains sensitive information. Salary details, tax information, bank details, pension contributions, and other employee data shouldn't be accessible to everyone in the organisation.

Zoho Payroll includes predefined user roles and permissions, allowing you to give people the access they need without giving everyone full control of payroll. It also includes multi-factor authentication, role-based access, data encryption, and activity logs to help keep payroll information secure.

This becomes even more important as your business grows and payroll responsibilities are shared across teams.

Step 10: Run your first payroll  

With the setup complete, the first pay run brings everything together.

Before finalising it, review the information that will affect what each employee receives:

A review at this stage can catch an incorrect tax code, missing deduction, or salary amount before the payroll is finalised.

Step 11: Send your FPS to HMRC  

Once payroll has been finalised, the figures need to be reported to HMRC.

The Full Payment Submission (FPS) contains information about employees' pay, deductions, Income Tax, and National Insurance. It must generally be submitted on or before the employees' payday.

The FPS also reports new starters and changes to employee information, making it a regular part of the payroll cycle rather than a one-off submission when payroll is first set up.

There may also be occasions when an Employer Payment Summary (EPS) is required. Unlike an FPS, which reports employee payments, an EPS is used for certain employer-level information, such as Employment Allowance or recoverable statutory payments.

Zoho Payroll supports both FPS and EPS, keeping the two types of RTI submission within the same payroll workflow. 

Step 12: Generate payslips and pay your employees  

The payroll calculation is only one part of payday. Employees also need a clear record of what they're being paid and the deductions made from their pay.

Once the pay run is finalised, Zoho Payroll can generate and distribute payslips automatically. Employees can access them through the web or mobile self-service portal, along with their tax details, compensation information, and workplace pension summary.

For salary payments, Zoho Payroll generates a BACS salary payment file after the pay run. This can be downloaded and used through the business's bank to make the payments.

Payroll calculation → FPS submission → payslips → BACS file → employee payment

The exact timing of your banking process will depend on your bank and pay schedule, so make sure you leave enough time for the payment to reach employees on the agreed payday.

Step 13: Pay HMRC what you owe  

After you've run payroll and submitted your reports, you also need to pay HMRC the tax and National Insurance you've collected or owe as an employer.

For most employers paying electronically, the deadline for PAYE payments is the 22nd of the month following the tax month to which the payment relates. Employers paying by post generally have until the 19th. Businesses that usually owe less than £1,500 a month may be able to arrange quarterly payments with HMRC.

The amount due can include Income Tax, employee National Insurance, employer National Insurance, and other amounts reported through payroll.

What should your first payroll checklist look like?

Before you run your first pay run, use this checklist to make sure you've covered the essentials.

You don't need every item on this list for your very first pay run. For example, you won't need to configure statutory payments if none of your employees are receiving it. But checking the areas that apply to your business before payday can save you from having to correct payroll after you've already paid your employees.

Can AI help with payroll management?

AI is increasingly becoming part of payroll software, but the useful question is what it can actually help you do.

In Zoho Payroll, Ask Zia is available in both the payroll administrator portal and employee portal.

For payroll administrators, Zia can provide AI-powered assistance with payroll tasks, such as onboarding new employees to creating a pay run, and more. For employees, it can answer payroll-related questions and help them find the information they need without having to contact the payroll administrator for every query.

Zoho Payroll also includes Zia forecasting and Zia insights, which can help you look ahead at payroll data, identify trends, and understand patterns in your payroll.

That can be useful once you've moved beyond simply asking, "Did everyone get paid?" and start asking questions such as, "How is our payroll cost changing?" or "What patterns should we be paying attention to?"

Common mistakes to avoid when setting up payroll for the first time

• Waiting until the first payday to register  

Don't leave PAYE registration until the last minute. HMRC says you should register before your first payday, and you cannot register more than two months before you start paying employees. Give yourself enough time to receive your employer references and configure your payroll software.

• Treating payroll as just salary calculation  

Salary is only one part of payroll. Tax, National Insurance, pensions, student loans, statutory payments, benefits, deductions, and HMRC reporting can all become part of the process.

Choosing software that can handle these alongside salary calculations means you're less likely to end up maintaining separate spreadsheets for different parts of payroll.

• Entering employee information without checking it  

A wrong tax code, incorrect salary, or missing pension information can affect the entire pay calculation. Take a few minutes to review your employee setup before approving your first payroll.

• Forgetting about pensions  

Workplace pension duties begin when your first member of staff starts work, so don't treat pensions as something to figure out after your first payroll.

• Missing the FPS deadline  

Your FPS generally needs to reach HMRC on or before payday. Build the submission into your normal payroll process rather than treating it as a separate task to remember later.

• Not planning for changes  

Your first payroll might be simple. The fifth or fiftieth probably won't be. Employees get pay rises, work overtime, receive bonuses, or become eligible for statutory payments. Set up payroll with these possibilities in mind from the beginning.

Frequently asked questions

• How do I set up payroll for the first time in the UK?  

Start by registering as an employer with HMRC, choosing how you'll run payroll, setting up your workplace pension responsibilities, and collecting the required information from your employees. Then configure your pay schedule, add employees to your payroll software, run your first payroll, submit your FPS to HMRC, pay your employees, and pay HMRC what you owe.

• Do I need to register for PAYE before paying my first employee?  

If you need to operate PAYE, you should register with HMRC before your first payday. You cannot register more than two months before you start paying people.

• What information do I need from a new employee?  

You'll generally need their personal details, National Insurance number, date of birth, start date, tax information, salary or pay rate, and bank details. You'll also need their P45 if they have one, or the HMRC starter checklist if they don't. You should also check whether they need to repay a student loan.

• Do I need payroll software in the UK?  

If you run payroll yourself, you'll need payroll software that can report PAYE information online to HMRC, unless you qualify for an exemption. Payroll software can calculate pay and deductions, record employee details, report payroll information, and calculate what you need to pay HMRC.

• When do I need to submit my first FPS?  

You generally need to submit your FPS to HMRC on or before your employees' payday. Your first FPS also tells HMRC about your new employees.

• Do I need to set up a workplace pension before my first payroll?  

You need to understand your workplace pension duties when your first employee starts work. Your duties start on the day your first member of staff starts work, even if you don't think anyone will need to be automatically enrolled.

• How often should I run payroll?  

You can run payroll weekly, fortnightly, or monthly, depending on your business and the pay frequency you've agreed with your employees. Whichever schedule you choose, keep your payday consistent and make sure your FPS is submitted on or before payday.

• When do I pay PAYE to HMRC?  

Most employers need to pay HMRC by the 22nd of the month when paying electronically. The deadline is generally the 19th if paying by post. Employers who usually owe less than £1,500 a month may be able to arrange quarterly payments.

• What is the difference between FPS and EPS?  

An FPS (Full Payment Submission) tells HMRC about employee payments and deductions and is generally submitted on or before payday. An EPS (Employer Payment Summary) is used for certain employer-level information and adjustments, such as statutory payment recoveries, Employment Allowance, or periods when no employees were paid.

• Can I use Zoho Payroll to submit FPS and EPS?  

Yes. Zoho Payroll supports Full Payment Submissions (FPS) and Employer Payment Summaries (EPS) as part of its UK payroll compliance capabilities.

• Can Zoho Payroll calculate PAYE and National Insurance?  

Yes. Zoho Payroll automatically calculates PAYE and employee and employer National Insurance contributions as part of the payroll process.

• Can Zoho Payroll handle workplace pensions?  

Yes. Zoho Payroll supports multiple pension providers and pension groups, pension enrolment, Relief at Source, Net Pay Arrangement, Salary Sacrifice, and pension contribution report exports.

• Can employees access their payslips themselves?  

Yes. Employees can use the Zoho Payroll self-service portal through the web or mobile apps to access their payslips, tax details, compensation information, and workplace pension summary.

• Can Zoho Payroll create a BACS file?  

Yes. Zoho Payroll can generate a BACS salary payment file after a pay run, which you can download and use to make salary payments through your bank.

• What happens if I already have payroll data from another system?  

If you're moving to Zoho Payroll partway through a tax year, you can use its prior payroll capability to bring previous payroll information into the system and maintain continuity in your payroll records.