Starting a business is exciting, but it is also a balancing act. From developing your product or service to finding your first customers, there are plenty of moving parts. Among the less glamorous, but absolutely critical, pieces is payroll.

Whether you are paying yourself through PAYE, hiring your first employee, or preparing to scale, getting payroll right from day one will save you headaches later. It is not just about paying wages: it is about compliance, accurate reporting, pensions, benefits, and above all, making sure the people who support your business are paid correctly and on time.

Payroll is more than just a compliance exercise. It is a recognition of the work employees put in, and one of the simplest yet most powerful ways to show they are valued. After all, employees are fundamental to the success of any company.

At Folio, we see payroll as more than a process. It is the foundation for building trust with your team and keeping your business financially fit.

This guide takes you through the key stages, from setting up payroll to managing it as your team grows, and highlights the most important things to keep in mind.

Setting Up Payroll from Scratch

When you are new to payroll, it can feel overwhelming, but the setup process is relatively straightforward. The key steps are:

• Register as an employer with HMRC. You will receive your PAYE reference and accounts office reference, which are required to process payroll.
  
  
• Create a PAYE online account with HMRC. This allows you to check what you owe, pay bills, and access employee tax codes.
  
  
• Choose payroll software. A cloud-based option is best as it ensures you can access your payroll anywhere, streamline reporting, and collaborate easily with your accountant.
  
  
• Set up a workplace pension scheme. This becomes mandatory as soon as your first eligible employee starts working for you.
  
  

Taking the time to get these foundations right means you can run payroll smoothly, stay compliant with HMRC, and avoid costly mistakes later.

Understanding Your Responsibilities as an Employer

Running payroll is more than just transferring money into employees’ accounts. As an employer, you are legally responsible for making sure everything is done correctly and on time. That includes:

• Paying employees accurately and punctually. Nothing damages trust more quickly than late or incorrect payments.
  
  
• Submitting regular reports to HMRC. This includes Full Payment Submissions (FPS) and Employer Payment Summaries (EPS).
  
  
• Paying PAYE and National Insurance contributions. These must be made by the due date every month, ideally via Direct Debit.
  
  
• Staying up to date with legislation. Minimum wage rates, statutory payments, and pension rules are updated regularly.
  
  
• Providing documentation. Payslips, sickness and holiday policies, and other entitlements should all be clear and accessible.
  
  

By putting reliable systems in place, you are not just meeting compliance requirements. You are also building confidence with your team.

Budgeting for the True Cost of Employees

Hiring a new team member is not just about their monthly salary. Employers face additional, and sometimes hidden, costs that can affect your budget. For example:

• Employer pension contributions. Currently a minimum of 3% of qualifying earnings.
  
  
• Holiday entitlement. Employees are typically entitled to 28 days a year, including bank holidays, which means covering their workload while they are away.
  
  
• Statutory Sick Pay. £118.75 per week for up to 28 weeks, plus the indirect costs of providing cover.
  
  
• Recruitment, onboarding, and training. Advertising, agency fees, equipment, and the time invested in bringing someone up to speed.
  
  

Understanding the full cost of employment ensures you can make better hiring decisions, manage expectations, and avoid unexpected pressure on your cashflow.

Income Tax, National Insurance, and HMRC Submissions

Payroll also involves managing your obligations to HMRC. Payroll software makes this much simpler by:

• Automatically calculating Income Tax and National Insurance based on gross pay.
  
  
• Preparing FPS and EPS reports for submission.
  
  
• Keeping a clear record of what is owed and when.
  
  

As an employer, it is your responsibility to make sure payments are made on time, usually by the 22nd of the following month. Even if you do not have employees in a given period, you still need to file a nil EPS to avoid penalties.

Getting into the habit of using your government gateway account to double-check submissions, payments, and liabilities will give you peace of mind that everything is accurate.

Scaling Payroll as Your Business Grows

Growth is what every business aims for, but as your headcount increases, so do the challenges. Payroll quickly becomes a bigger moving part of your business, and cashflow management is key.

• Cashflow pressures increase. Higher net pay, NI, and pension contributions mean larger outgoings each month.
  
  
• Direct Debits reduce risk. Setting these up for PAYE, NI, and pensions ensures you do not face penalties for late payments.
  
  
• Benefits in Kind (BIKs). Healthcare or cars create additional National Insurance obligations.
  
  
• Payroll frequency impacts cashflow. Weekly or fortnightly runs might keep staff happy but can strain working capital.
  
  

Keep in mind: your employees are the foundation of your business. Consistent, reliable payroll builds trust and loyalty. Missing a payment damages both your reputation and your business.

Conclusion: Payroll and Cashflow Go Hand in Hand

Payroll is not an optional extra. It is one of the most important systems to get right from the very beginning. Following the steps above will help you stay compliant, pay your team on time, and avoid unnecessary stress.

But payroll does not exist in isolation. It is tied directly to your cashflow, and poor cashflow management is one of the biggest risks for small businesses. Ensuring there are always funds available for payroll requires careful planning, ongoing monitoring, and healthy, accurate accounts.

At Folio, we know how critical payroll and accounting are to the success of any growing business. That is why we do not just run payroll for our clients. We also provide the accounting insights that keep cashflow strong and businesses prepared for what is next. In other words, we help you build the financial foundations to grow with confidence.

Talk to us today about how we can support your payroll and accounting needs.

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