This article explains how to create a payroll profile for an employee when setting up payroll in FreeAgent or adding a new employee to payroll.
Please note that FreeAgent's payroll functionality won't be available if you have an unincorporated landlord account or if you're preparing your accounts using the cash accounting basis.
When you’re setting up payroll in FreeAgent, you need to create a payroll profile for each employee that will be included on your payroll. You’ll also need to create a payroll profile if you want to add a new employee to your existing payroll at a later date.
Please note that you will need full (level 8) access to FreeAgent in order to create a payroll profile.
Before you start
Before you can create a payroll profile for an employee, you will need to add the employee as a user to your FreeAgent account.
Adding a new payroll profile
You will create your first payroll profile when you set up payroll in FreeAgent. To add further payroll profiles, navigate to the ‘My Money’ tab at the top of the screen and select ‘Payroll’ from the drop-down menu. Select ‘Add an Employee’ from the right-hand side of the ‘Employees’ section and select the employee’s name from the drop-down menu.
Completing a payroll profile
Payroll profiles contain information that’s required to file your payroll online with HMRC, including details of an individual's monthly pay, deductions, pension contributions and starting/leaving dates.
Some information will be filled in by FreeAgent automatically, based on the information that you provided in the employee's user profile, but you will need to complete the remaining sections as outlined below to create a payroll profile for the employee.
Please note that each employee should have their own payroll profile and a profile should never be updated and used for another employee.
Enter the employee’s personal details here. If the employee doesn't have a National Insurance (NI) number, please see this article.
You only need to enter a passport number if you've collected this as part of any checks you've made as to whether the employee is entitled to work in the UK.
Select whether this employee is ‘An existing employee’ or ’A new employee’. The remaining fields which you’re required to complete will change depending on which option you choose. If you’re creating a payroll profile for an existing employee, please see this article.
For a new employee, enter a start date and select from the HMRC ‘Starting declaration’ options which provide information about any other work the employee has undertaken or benefits they have received during the current tax year. This information about a new employee will be sent to HMRC as part of your next RTI submission after you create their payroll profile.
Then choose a National Insurance contribution basis from the 'NICs calculated as' options. If the individual is an employee, select the ‘Employee’ option. However, if the individual is a director of the company, select from either the ‘Director’ or ‘Director (alternative arrangements)’ options. For more information on selecting the National Insurance contribution method for a director, please see this article.
Select an option from ‘Normal Weekly Hours’ to indicate how many hours per week the employee will work for the business and whether or not they are paid hourly. You can select whether or not they are paid irregularly and also add an optional unique employee ‘Payroll ID’ number if you'd like HMRC to reference the number in any correspondence with you. The payroll ID must be unique and if, at any point, you re-employ someone HMRC requires you to use a different ID.
Tax & NI
Next, enter a tax code. You should have received this from HMRC or you will find it on a new employee's P45. If your employee doesn’t have a P45, please see this article.
Tax codes should only be changed on receipt of a coding notice from HMRC. FreeAgent can handle BR, D0 (D-zero), D1 (D-one), K prefixes (like K495) or L, M, N, P, S, T or Y suffixes.
If your employee has been given an emergency tax code by HMRC and has a ‘W1’, ‘M1’ or ‘X’ suffix, select ‘Yes’ for the ‘Make deductions on a Week 1/Month 1 basis?’ option. If your employee hasn’t been given an emergency tax code by HMRC, select ‘No’.
Next, you’ll need to select your employee’s National Insurance Category Letter. This is also known as the National Insurance contribution letter and is the same as the NIC Table Letter shown on a P60.
Student loan deductions
If the employee should be making student loan deductions, select the appropriate plan type from the ‘Deduct student loans?’ option. If you tick the ‘Undergraduate loan’ option, you'll be prompted to select which type of repayment plan applies to the loan.
FreeAgent will automatically deduct the appropriate amount from the employee’s payslip when you run payroll each month. Please note that once calculated, this figure cannot be overwritten and the deduction will occur when the employee’s total pay exceeds the threshold for the selected plan.
Health and Social Care Levy
Between 6th April 2022 and 5th April 2023, FreeAgent will automatically calculate the increased National Insurance contribution as per HMRC guidelines (3.9.8 National Insurance contributions - Health and Social Care Levy). A message will appear on payslips where applicable, confirming the “1.25% uplift in NICs funds NHS, health & social care” as per HMRC requirements to explain what these funds will be used for.
This will impact payslips raised within the 2022/23 tax year and where the employee is due to pay National Insurance.
To remove this message from an employee’s payslips, select ‘No’ to the right of ‘Show Health and Social Care Levy note?’.
Select ‘No’ for the ‘Employee leaving during the next pay run?’ option as you don't need to add a leaving date when first setting up a payroll profile. This is where to add a leaving date if the employee leaves the company in the future.
Enter details of the employee's monthly pay with any allowances or other payments.
Monthly Statutory Pay
If the employee is currently receiving statutory payments, such as paternity or maternity payments, select ‘Yes’ for ‘Is this employee receiving statutory pay?’ and enter the relevant details.
If the employee is claiming or planning to claim Shared Parental Leave, enter a value in the ‘Shared Parental Pay’ field and enter their partner’s details.
Next, enter any regular monthly deductions such as trade union subscriptions and employee paid health cover.
Monthly Pension Contributions
Finally, enter details of any employer or employee monthly pension contributions. To do this, select ‘Yes’ for ‘Is this employee making monthly pension contributions?’ and enter the relevant details.
For more information on entering monthly pay, deductions or pension figures, please see this article.
Once all the relevant information has been entered, select ‘Create Payroll Profile’ at the bottom of the screen to create the payroll profile for the new employee.