Setting Up Payroll and Tax for Your Franchise

Taking on your first employee is a proud moment for any franchise owner. It means your local business is growing. But it also brings a set of legal duties around payroll and tax. The good news is that with a little preparation, you can set up PAYE, National Insurance and pensions smoothly. This guide walks you through the essentials so you can stay compliant from day one.

Registering as an Employer and Getting PAYE Ready

Before you pay anyone, you must register with HM Revenue & Customs (HMRC) as an employer. This can take up to 15 working days, so do it well before your first payday. You will receive a PAYE reference and an Accounts Office reference. These are essential for reporting and paying tax.

PAYE is the system you use to deduct income tax and National Insurance from your employees' wages. You then report these deductions to HMRC through Real Time Information (RTI). Every time you pay someone, you must send an RTI submission on or before payday. This includes details of pay, tax and National Insurance.

If you are a sole director with no other employees, you may not need a PAYE scheme unless you pay yourself a salary above certain limits. But once you hire, registration is mandatory. Your franchise agreement might offer payroll guidance, but the legal responsibility remains yours.

National Insurance Contributions for Employers and Employees

National Insurance is a key part of payroll. Employees pay contributions on their earnings, which you deduct from their pay. As an employer, you also pay secondary National Insurance on top of their wages. The rates and thresholds change, so always check the current tax year figures.

For the 2024/25 tax year, employer National Insurance is 13.8% on earnings above £9,100 per year. Employees pay 8% on earnings between £12,570 and £50,270, and 2% on anything above that. These thresholds are annual, but payroll software will calculate them automatically each pay period.

Small employers can claim the Employment Allowance, which reduces your employer National Insurance bill. It can be worth up to £5,000 per year, and some franchises with a single employee may pay no employer National Insurance at all. Your payroll software or adviser should check your eligibility.

Automatic Enrolment and Workplace Pensions

If you employ at least one person, you have automatic enrolment duties. You must assess your workers to see if they are eligible. Generally, this means anyone aged between 22 and State Pension age who earns more than £10,000 per year. You must enrol them into a qualifying workplace pension scheme.

The minimum total contribution is 8% of qualifying earnings, with at least 3% coming from you as the employer. The rest is deducted from the employee's pay. You must pay these contributions to the pension provider by the 22nd of the following month (or 19th if paying by cheque).

You also need to complete a declaration of compliance with The Pensions Regulator within five months of your duties start date. Every three years, you must re-enrol eligible staff and repeat the process. Even a small café franchise with one part-time worker must follow these rules.

Choosing Payroll Software or an Adviser

You have two main options: do it yourself with HMRC-recognised payroll software, or appoint an accountant or payroll bureau. Software can calculate PAYE, National Insurance and pension contributions, produce payslips and send RTI reports. Many packages are designed for small businesses and scale as your franchise grows.

An adviser takes the task off your plate for a monthly fee. This is often worthwhile if you are busy serving customers and managing staff. Your franchisor may recommend preferred suppliers, but always check that they understand your specific franchise model and local payroll needs.

Whichever route you choose, make sure it handles automatic enrolment assessments, payslips and RTI submissions. A good system will also remind you of key deadlines so you avoid penalties.

Building Good Payroll Habits from Day One

Set a clear payroll calendar. Mark payday, the date you submit RTI, the date pension contributions are due, and the date you pay HMRC. Most employers pay PAYE and National Insurance monthly by the 22nd of the following month, but smaller employers can pay quarterly. Here are the key dates to track:

• Payday: pay your staff and send your RTI submission.
• 22nd of the following month: pay PAYE and National Insurance to HMRC.
• 22nd of the following month: pay pension contributions to your provider.
• Annually: review rates, thresholds and your Employment Allowance.

Keep thorough records. HMRC can check your payroll records for up to six years, so store payslips, RTI reports, pension documents and calculations safely. Review your payroll setup every April when tax rates and thresholds change. Check your Employment Allowance and pension contribution rates too.

If you are ever unsure, ask an adviser. Penalties for late filing or payment can add up quickly, and they are easily avoided with good habits. Franchising gives you a proven business model, and payroll is just one part of that. Get it right early, and you can focus on what you do best: growing your local franchise.