Simplified payroll terms to help you quickly grasp the concept of payroll.
The National Insurance an employer pays on top of an employee’s gross pay once earnings pass the secondary threshold. It is separate from what the employee pays.
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A payment made outside the regular pay run, such as a missed wage, a correction, or a one-off amount for a new joiner.
A 0.5% levy on annual pay bills above £3 million, paid by larger employers to fund apprenticeships. Each employer gets a £15,000 yearly allowance against it.
A legal instruction to deduct money from an employee’s pay to settle a debt, such as council tax arrears or unpaid fines. The employer makes the deduction and passes it on.
The rate at which employees leave an organisation over a given period.
The law that requires employers to enrol eligible workers into a workplace pension. Workers aged 22 to State Pension age who earn over £10,000 a year are eligible.
The system behind most UK salary payments. A BACS file lists each employee’s bank details and net pay, and payments usually clear within three working days.
Wages owed to an employee for earlier pay periods, usually because of a late pay rise or a payroll error.
The lowest band of income tax, charged at 20% on income above the personal allowance.
Perks provided on top of salary, such as a company car or private medical insurance. They are taxable and reported to HMRC on a P11D or through payroll.
A one-off payment on top of salary, usually linked to performance. It is taxed and subject to National Insurance like regular pay.
The National Insurance contributions paid by employees and employers on earnings. They are calculated each pay period.
A charge paid only by employers on most benefits in kind and on termination payments above £30,000. It is reported annually and paid by 22 July after the tax year ends.
A metric that totals what it costs to hire one employee, including advertising, agency fees, onboarding, and relocation.
Amounts taken from an employee’s gross pay before they receive their net pay. Common ones are income tax, National Insurance, pension contributions, and student loan repayments.
Company directors have National Insurance calculated on their annual earnings rather than each pay period. Employers can use the standard method or the alternative method.
The length of time a payment of earnings covers, such as a week, a fortnight, or a month. National Insurance thresholds are applied per earnings period.
The National Insurance an employer pays on top of an employee’s gross pay once earnings pass the secondary threshold. It is separate from what the employee pays.
A monthly submission to HMRC used to claim the Employment Allowance, recover statutory payments, or report a month with no payments to employees.
A reduction of up to £10,500 each tax year against an employer’s National Insurance bill. Eligible employers claim it through payroll.
The legal category a person falls into at work: employee, worker, or self-employed. It decides which rights they have and how they are paid and taxed.
A UK bank transfer service that moves money within hours, often within minutes. Some employers use it for same-day or urgent pay.
The last payment an employee receives when they leave. It covers outstanding salary, unused holiday, and any other amounts owed.
The report sent to HMRC on or before every payday. It lists what each employee was paid and what tax, National Insurance, and other deductions were taken.
A period when an employee works their notice at home, or does no work at all, while still being paid and employed.
A yearly requirement for employers with 250 or more employees to publish the difference in average pay between men and women.
The total an employee earns before deductions. It includes salary, overtime, bonuses, and commission.
His Majesty’s Revenue and Customs, the UK tax authority. Employers report pay and deductions to HMRC and pay over the tax and National Insurance they collect.
Pay an employee receives while on annual leave. Most workers get 5.6 weeks of paid leave a year, which is 28 days for someone working a five-day week.
The amount paid for each hour worked. It must be at or above the National Minimum Wage or National Living Wage for the employee’s age.
Also called the off-payroll working rules. They decide whether a contractor working through their own company should be taxed like an employee.
A payment offered to a new hire for accepting a role. Some employers add a repayment clause if the person leaves within a set period.
A record of a financial transaction in the accounting system. Payroll journals post salaries, tax, and National Insurance to the right accounts.
Days an employee on maternity or adoption leave can work, up to 10, without losing their statutory pay or ending their leave.
Measurable values used to track how a company, team, or individual is performing.
An employee who has left the business. Payroll issues a P45 and runs final pay.
The earnings level at which an employee starts to build qualifying years towards their State Pension, even if they pay no National Insurance yet.
A payment from the government for working mothers who do not qualify for Statutory Maternity Pay, such as the self-employed. Employers do not pay it.
Payments for business journeys in a personal vehicle. HMRC’s approved rate is 45p a mile for the first 10,000 business miles in a tax year, then 25p. Payments above the approved rate are taxable.
A pay cycle where employees are paid once a month, usually on a fixed date or the last working day.
A contribution on earnings that builds entitlement to benefits, including the State Pension. Each employee has a National Insurance number.
The lowest hourly rates employers can legally pay. The National Living Wage applies to workers aged 21 and over, and the National Minimum Wage covers younger workers and apprentices. Rates are reviewed every April.
A workplace pension scheme set up by the government. Any employer can use it to meet their auto-enrolment duties.
The amount an employee takes home after all deductions. Net pay = Gross pay minus deductions.
A pension method where contributions are deducted before income tax is calculated, so the employee gets tax relief straight away.
Pay for the notice period, either worked or paid in place of working. Statutory minimum notice depends on length of service.
A formal document sent to a chosen candidate. It sets out the role, salary, start date, and main terms.
The process of settling a new hire into the organisation, from paperwork and payroll set up to training and introductions.
Money paid to an employee in error. Employers usually recover it through agreed deductions in later pay runs.
A form that reports benefits in kind provided to employees and directors during the tax year. It is due to HMRC by 6 July after the year ends.
A form given to an employee when they leave. It shows their pay and tax to date and goes to their next employer.
A year-end summary of an employee’s pay, tax, and National Insurance. Employers give it to every employee on the payroll at 5 April by 31 May.
A payment made instead of the employee working their notice. It is usually treated as taxable earnings.
One complete cycle of calculating, approving, and paying employees for a pay period.
Pay As You Earn - The system employers use to deduct income tax and National Insurance from pay and send it to HMRC.
The slice of pay that auto-enrolment contributions are calculated on. It sits between £6,240 and £50,270 a year.
A way for small employers to pay HMRC every three months instead of monthly. It is open to employers whose average PAYE bill is under £1,500 a month.
The system employers use to report pay and deductions to HMRC every time they run payroll.
A payment to employees who lose their job because the role is no longer needed. Employees with at least two years’ service qualify for statutory redundancy pay.
A pension method where contributions come out of pay after tax. The pension provider then claims basic rate tax relief from HMRC and adds it to the pot.
A legal check employers carry out before a new employee starts, to confirm they are allowed to work in the UK.
An agreement where an employee gives up part of their salary in return for a benefit, often a pension contribution. It can reduce National Insurance for both sides.
The way people report income to HMRC when tax is not fully collected through PAYE. Directors and the self-employed often file one.
Statutory pay for parents who share leave after a birth or adoption. It can be paid for up to 37 weeks.
Lets employers with a smaller National Insurance bill recover 103% of statutory payments they make, instead of 92%.
A code that tells the employer how much tax-free pay an employee gets in each pay period. The standard code for most people is 1257L.
The part of an employee’s pay that income tax is worked out on, after pre-tax deductions such as net pay pension contributions.
Small gifts costing £50 or less that employers can give without reporting them or paying tax, as long as they are not cash or a reward for work.
A company that employs contractors and pays them through PAYE, after deducting its fees and the employer’s costs.
Time off where the employee receives no pay for the days they are away.
Pay that changes from period to period, such as commission, bonuses, and overtime.
Deductions an employee chooses, such as extra pension contributions, cycle to work schemes, or union fees.
An emergency tax basis where each pay period is taxed on its own, with no credit for earlier pay. HMRC uses it when it does not have the details to set up a normal tax code.
UK rules covering maximum working hours, rest breaks, and paid annual leave.
A pension arranged by an employer, funded by contributions from the employee, the employer, and tax relief.
The period from the start of the tax year to the current pay date. Payroll uses YTD totals to work out tax, National Insurance, and reports.
An employment contract that does not guarantee any minimum hours. The worker is paid only for the hours they work.
