TemporHow to Run Payroll for a Small Business (UK): A Practical 2026 Guide
The first time you hire someone — a labourer, an apprentice, a site manager — you inherit a set of duties that nobody explains on the way in: PAYE, Real Time Information, pension auto-enrolment, payslips, monthly payments to HMRC. This guide walks a UK small business through the whole thing: the one-time setup, the per-payday cycle as a repeatable checklist, and the extra wrinkles that construction firms in particular need to get right.
What "running payroll" actually means
Running payroll is the process of paying employees correctly and telling HMRC about it. In the UK that happens through PAYE (Pay As You Earn): instead of employees settling their own tax bill at the year end, the employer deducts Income Tax and National Insurance from each payslip and passes it to HMRC on their behalf.
The reporting side runs on RTI — Real Time Information. In plain English: every time you pay your staff, your payroll software sends HMRC a report called a Full Payment Submission (FPS) listing who was paid, how much, and what was deducted — on or before the day the money lands. There is no saving it up for a quarterly return; HMRC hears about every payday as it happens. That single fact shapes the whole rhythm of small business payroll: the deadline isn't the end of the month, it's payday itself.
One-time setup: three jobs before your first payday
1. Register as an employer with HMRC. Do this before you pay anyone — HMRC issues the PAYE reference numbers your software needs, and registration can take time to come through, so don't leave it until the week wages are due. Start at gov.uk/register-employer. This applies whether you're a sole trader taking on your first bricklayer or a limited company paying its director.
2. Choose payroll software. RTI submissions must come from recognised software — you can't email HMRC a spreadsheet. Options range from HMRC's own free Basic PAYE Tools to commercial packages such as Sage, Xero, QuickBooks and BrightPay, which add payslips, pension handling and reporting. Whichever you choose, the quality of what comes out depends entirely on the hours going in — more on that below.
3. Sort your workplace pension duties. Under auto-enrolment, employers must assess their staff, automatically enrol those who qualify (based on age and earnings) into a workplace pension scheme, and pay employer contributions at no less than the legal minimum. Staff can opt out, but you cannot encourage them to — and every three years you must re-enrol eligible staff who previously left the scheme. The mechanics and current thresholds are at gov.uk/workplace-pensions-employers.
The per-payday cycle, step by step
Once set up, payroll becomes a loop you run every pay period — weekly on many sites, monthly elsewhere. Here it is as a checklist:
- Collect accurate hours. Gather and approve what each person actually worked — basic hours, overtime, weekend shifts, days lost to rain or absence — before your cut-off. This is the step small firms most often fumble: a foreman's notebook and a Sunday-night phone round are not a payroll input. Our guide to tracking employee hours covers how to get this right.
- Calculate gross pay. Hours × hourly rate, or days × day rate, plus overtime and any bonuses. A groundworker on a day rate who did five days plus a Saturday needs that Saturday captured and priced correctly here, not remembered later.
- Apply deductions. Your software deducts Income Tax under PAYE (driven by each employee's tax code), National Insurance, workplace pension contributions and any student loan repayments — all at the current HMRC-set rates. You don't need to memorise the figures; you do need the software kept up to date and the tax codes entered correctly. Current rates live on gov.uk.
- Issue payslips. Every employee must receive a payslip on or before payday showing gross pay, each deduction and net pay. It's a legal requirement — and on site it's also the document that heads off most pay disputes before they start.
- Submit the FPS. Your software sends the Full Payment Submission to HMRC on or before payday. If you paid nobody in a period, or need to reclaim or adjust anything, an Employer Payment Summary (EPS) covers it instead.
- Pay HMRC. The tax and National Insurance you deducted goes to HMRC monthly — by the 22nd of the following tax month if you pay electronically (the 19th by post). Tax months run from the 6th of one month to the 5th of the next. Pension contributions go to your scheme provider on its own schedule.
Construction extras: CIS, mixed crews and day rates
CIS subcontractors are not payroll. Self-employed subbies paid under the Construction Industry Scheme don't go through PAYE at all — CIS deductions come off the labour element of their invoices, are reported on a separate monthly CIS return, and count as advance payments towards the subcontractor's own tax. The rules, rates and deadlines are a system of their own, covered in our CIS payroll guide.
Mixed crews are the normal case. A typical small contractor has both on one site: two employed labourers and an apprentice through PAYE payroll, plus a self-employed sparky and a brickwork gang under CIS. That means two parallel monthly rhythms — FPS per payday and PAYE payments for the employees, CIS returns and deduction statements for the subbies — and it makes getting each person's status right doubly important, because putting someone in the wrong column breaks both systems at once.
Day rates and overtime patterns need capturing, not assuming. Construction pay is rarely a clean 40 hours: day rates with half-days, weather days, travel time, weekend uplifts and job-to-job moves are all normal. Payroll can handle all of it — but only if the record of what actually happened reaches payroll intact. If holiday comes into the mix too, see our guide to calculating holiday entitlement for hourly workers.
Common payroll mistakes to avoid
- Bad hours data. The most common error isn't a tax sum — it's the input. Estimated hours, missed overtime and unrecorded absence produce wrong gross pay, and every deduction after that is wrong too.
- Late FPS submissions. The FPS is due on or before payday, and a pattern of late filing attracts HMRC penalties. If you run payroll at 9pm and pay at 9am, the FPS goes with it.
- Misclassifying workers. Treating an employee as a CIS subbie means PAYE that should have been operated wasn't — with back tax and penalties possible. The reverse, running a genuinely self-employed subcontractor through payroll, deducts tax the wrong way and creates a mess for both sides. Check employment status honestly, especially for long-standing "subbies" who work like staff.
- Forgetting pension re-enrolment. Auto-enrolment isn't one-and-done — every three years you must re-assess and re-enrol eligible staff who opted out, and tell The Pensions Regulator you've done it.
- No records. HMRC requires payroll records to be kept for at least three years from the end of the tax year they relate to. If yours are missing, HMRC can estimate what you owe — rarely in your favour — and add penalties.
Your payroll rhythm at a glance
| Task | When |
|---|---|
| Register as an employer with HMRC | Once — before your first payday |
| Collect and approve hours | Every pay period, before your cut-off |
| Run payroll: gross pay → deductions → net pay | Every payday |
| Issue payslips | On or before payday |
| Submit FPS to HMRC | On or before payday |
| Send EPS (nil payments, reclaims, adjustments) | By the 19th of the following tax month, when needed |
| Pay HMRC the deductions | Monthly, by the 22nd (electronic) of the following tax month |
| CIS return & deduction statements (if you pay subbies) | Monthly, by the 19th — see the CIS guide |
| Pension re-enrolment check | Every three years |
| Keep payroll records | Ongoing — at least three years from the end of the tax year |
Where Temporra fits
Look back at the cycle: five of its six steps are calculations and submissions your payroll software handles. The step that isn't — collecting accurate hours — is the one that decides whether everything downstream is right, and it's where Temporra does its work. Workers clock in and out on site, on their own phone or a site kiosk with PIN or face options, and the exact hours feed timesheets automatically — no notebook, no Sunday-night phone round. Leave records live in one place alongside the hours, and when payday comes, payroll-ready exports go straight to Sage, Xero, QuickBooks and BrightPay (see integrations). For the CIS side of a mixed crew, Temporra supports CIS deductions on subcontractor invoices too. Plans are on the pricing page.
FAQ
Do I need to register as an employer with HMRC?
Yes — before your first payday. Register with HMRC as an employer to get your PAYE reference numbers, which your payroll software needs before it can submit anything. Registration can take time to process, so do it well ahead of paying your first employee.
What is an FPS and when is it due?
The Full Payment Submission is the report your payroll software sends to HMRC under Real Time Information, listing each employee's pay and deductions for that payday. It is due on or before the day you pay your staff — not at the end of the month. Late or missing FPS submissions can lead to penalties.
Are CIS subcontractors part of payroll?
No. Self-employed subcontractors paid under the Construction Industry Scheme are not employees, so they do not go through PAYE payroll. CIS deductions are taken from the labour element of their invoices and reported on a separate monthly CIS return. Many construction firms run both systems side by side for mixed crews.
How often do I pay HMRC what I have deducted?
Usually monthly. The tax and National Insurance you deduct is paid over to HMRC by the 22nd of the following tax month if you pay electronically (the 19th by post). Some smaller employers can arrange to pay quarterly instead — check HMRC's guidance for whether you qualify.
How long do I need to keep payroll records?
HMRC requires payroll records — pay, deductions, reports and payments to HMRC, plus leave and absence records — to be kept for at least three years from the end of the tax year they relate to. If your records are incomplete, HMRC can estimate what you owe and charge penalties.
Ready to feed payroll with exact hours instead of estimates? Temporra turns clock-ins on site into accurate timesheets and payroll-ready exports automatically.