Understanding Key UK Pay Legislation

How to do Payroll in the UK

Anyone with a business who hires even just one employee needs to thoroughly understand how to run payroll in the UK. All employers have responsibilities when it comes to payroll, including everything from accurately processing pay to offering pension contributions.

Be confident in your payroll processing with the help of our guide, which has been carefully put together to support business owners of varying experience and abilities.

Everything You Need to Know About the HMRC

Importantly, whenever you employ someone new, the HMRC (HM Revenue and Customs) must be informed. It’s the HMRC that will determine the individual’s tax code and National Insurance band, which will change as and when their circumstances do (such as if they have more than one source of income, or they need to pay back tax from a previous year).

New Starter Declaration

Once you’ve successfully recruited, carried out the relevant eligibility checks, clarified if an employee will be enrolled into your workplace pension scheme, and agreed on contracts (including salary), you must tell the HMRC.

With every new employee, you will need to communicate this with the HMRC on or before their first pay day. This process includes collecting employee information, most of which can be gathered from an employee’s P45. In the absence of a recent P45, employees will need to fill out a ‘starter checklist’.

This should include:

  • Date of birth
  • Gender
  • Full address including postcode
  • Start date

Information to pull from an employee’s P45, according to the HMRC, includes:

  • Name
  • Leaving date
  • Total pay and tax paid to date for the current tax year
  • Student loan deduction status
  • National Insurance number
  • Existing tax code.

This information must be kept for payroll records.

Request a New Employee’s P45

You should ask the employee for a copy of their P45, which they should have received – or will receive – shortly after leaving their previous employer. This form displays information regarding their tax code and National Insurance band, which tells you, the new employer, how much tax and National Insurance you need to pay on their behalf.

Understand PAYE

PAYE (or Pay As You Earn) is the HMRC’s system with which employees pay their tax as they earn it – rather than paying a big bill at the end of the tax year. Whilst it is convenient for employees, it does mean there is more work for the employer to do when it comes to tax administration.

RTI Software

Under the PAYE system, employers need to record all their employee pay information as it happens. This is known as ‘Real Time Information’, (RTI) and must be properly documented using a supporting software like Staffology.

RTI software enables employers to run reports called Full Payment Submissions (FPS), which are then sent to HMRC with each payroll. These reports allow HMRC to have access to all the necessary information, including hours worked and rate of pay.

Year-End Reporting

On, or before, the end of the tax year – the 5th of April – all employers need to send HMRC their final, year-end report. When running your normal FPS, you should be able to simply select a tick box or similar on your software that says, ‘Final submission for year’. This summarizes the payments that have been made throughout the year for the HMRC to clearly see.

After the final FPS has been run and sent to HMRC, employee P60s will be generated. P60s show the employee how much they have been paid throughout the year, as well as what they’ve paid in tax and National Insurance. These must be distributed to all employees in a prompt fashion – before May 31st.

Understanding Key UK Pay Legislation

As well as getting to grips with the HMRC’s reporting requirements, the UK also has laws dictating other payroll aspects. These cover everything from minimum wage to parental leave pay.

As a business owner who has just started employing people, it’s vital to have a good understanding of what these laws entail. It’s also important to keep an eye on this area of legislation, as UK employment law evolves all the time.

Minimum Wage in the UK

The National Minimum Wage in the UK goes up every year, in correspondence with inflation rates. The law sets out the minimum amount that an employee must be paid, per hour, according to their age. It’s a good idea to check gov.uk for up-to-date rates; however, for the tax year 2022-2023, these are the minimum wage rates:

Apprentices (aged 19 or below, or in the 1st year of an apprenticeship scheme) £4.81 
Under 18 £4.81 
Aged 18-20 £6.83 
Aged 21-22 £9.18 
Aged 23+ £9.50 
National Minimum Wage will increase in April 2023. 

Pensions Auto-Enrolment

In 2012, the UK pension auto-enrolment scheme came into force. This is overseen by The Pensions Regulator (TPR) – a governing body that’s in place to make sure UK pensions are protected, and employees are offered auto-enrolment. The scheme demands that all employers offer their employees a workplace pension, into which both parties deposit funds with each payroll run. Employees can opt-out of the scheme, which they may do if they would rather keep more of their pay than save into a pension pot. In this case, the employer does not need to contribute to pension either. If an employee does opt-out, they must be given the option to re-enrol at least every three years.

For employees who do partake in the workplace pension scheme, the minimum contribution of wages is 8%. At least 3% of this must be from the employer. Employees can request to save more into their pension; however, this does not mean that the employer needs to pay in more too.

To ensure that the new pension scheme was accessible and easy to carry out, the UK government commissioned NEST, which is now one of the most popular pension pots used. Staffology integrates easily with NEST, making this software a good choice for companies that use it.

Statutory Pay

UK employment law also entitles employees to access various types of statutory pay when they are not working for different reasons.

These include:

  • Statutory sick pay
  • Statutory maternity pay
  • Statutory paternity pay
  • Shared parental leave pay
  • Statutory adoption pay
  • Statutory parental bereavement pay.

As with minimum wage rates, statutory p

Finding The Right Supporting Software

Finding The Right Supporting Software

For any company running payroll in-house, it’s important to find a software that’s easy to use and reliable. Whether you’re paying one employee, or you foresee paying more than a thousand, Staffology software is ideal for running payroll in the UK. It’s a HMRC-approved software, meaning it’s compatible with PAYE and RTI, and it’s cloud-based. So, all your information is backed up and available anytime.

Staffology software is built on a comprehensive API. It’s compatible with a huge range of other HR and accounting software, integrating with everything from Sage and Xero to the Nest pension provider. Discover even more about our integrations.

To find out more about how Staffology could support your business needs when it comes to doing payroll in the UK, get in touch and speak to one of the team.

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