Running your first payroll: a step-by-step guide

Running payroll for the first time is one of those tasks that looks more complicated than it is, but only after you have done it once. Before that first run, the number of things to get right — HMRC registration, employee data, tax codes, NI categories, pension enrolment — can feel overwhelming. This guide walks through each step in order.

Step 1: Register as an employer with HMRC

Before you can run payroll, you need to register as an employer with HMRC. Do this as soon as you know you will be taking on a member of staff — ideally at least four weeks before the first pay date. HMRC will send you a PAYE reference number and an accounts office reference. These are needed for RTI submissions and HMRC payments. You can register online via the HMRC website.

Step 2: Collect employee information

For each employee, you need: full name, date of birth, address, National Insurance number, employment start date, agreed salary or hourly rate, contracted hours per week, bank details for BACS payment, tax code (from their P45 or starter declaration if no P45), NI category, pension enrolment status, and any student loan plan they are repaying.

If the employee does not have a P45 from their previous employer, they complete a new employee starter declaration (formerly known as the P46). This asks which statement applies to their employment situation — whether this is their only job, their main job, or a second job. The answer determines the initial tax code to use.

Step 3: Choose payroll software

HMRC accepts payroll submissions from HMRC-recognised software. Free software is available for very small employers, but for businesses with more than a handful of employees, purpose-built payroll software handles RTI submissions, statutory payment calculations, and year-end reporting automatically. Mellow includes payroll as part of the HR platform, so employee data feeds directly into the payroll run.

Step 4: Calculate gross pay

For salaried staff, gross monthly pay is annual salary divided by 12. For hourly staff, it is hours worked multiplied by hourly rate. Add any overtime, bonuses, or commission.

Step 5: Apply deductions in the correct order

Deductions come off gross pay in this sequence: salary sacrifice (pension, cycle-to-work, etc.) → income tax → NI → student loan → any attachment of earnings orders → net pay.

Step 6: Calculate employer NI and pension

Separately, calculate: employer NI (15% of earnings above the Secondary Threshold), employer pension contribution, and any apprenticeship levy liability (for payrolls over £3 million).

Step 7: Submit the FPS to HMRC

On or before the payment date, submit the Full Payment Submission via your payroll software. This tells HMRC who was paid, how much, and what was deducted.

Step 8: Pay employees

Submit your BACS file three banking days before the intended payment date. See our guide on BACS payments for payroll for the timing detail.

Step 9: Pay HMRC

By the 22nd of the following month, pay HMRC the combined total of: income tax deducted from all employees, employee NI contributions, and employer NI contributions. Reference your accounts office reference number so the payment is allocated correctly.

Step 10: Enrol eligible employees in a workplace pension

On or before the first payday, assess each employee for auto-enrolment eligibility. Enrol eligible employees and send them an enrolment communication within six weeks. See our pension auto-enrolment guide.

Mellow guides you through each of these steps and produces ready-to-file RTI automatically. [Start a free trial →](https://mellowhr.com/register)