Glossary of Payroll terms
Payroll
Payroll is the financial record of gross pay, such as salaries and bonuses, and deductions, including tax and national insurance contributions. To enable you to organise these financial records, calculate the deductions and to generate the appropriate paperwork you need a payroll system.
Payslip
Payslip is a summary that must be given to employees each time they are paid. It can be on any type of paper, but it must show the gross pay, details of all deductions, including tax and National Insurance. It must also show the net pay, after all deductions.
Gross Pay
Gross Pay is the total pay before any deductions such as tax, national insurance. Gross Pay can include salary, overtime, holiday and sick pay, bonus, commission and other any payments.
Deductions
Deductions are amounts taken off the gross pay for tax and National Insurance. There are other deductions may such as repayments of loans or staff contributions to a pension scheme.
Tax (income tax)
Tax for PAYE (pay-as-you-earn) is the amount collected by employers when making salary or wage payments. This is collected on behalf of HM Revenue & Customs (HMRC). The amount deducted is paid to HMRC.
National Insurance Deductions
National Insurance is calculated as a fixed percentage of an employee’s earnings and is compulsory. This deduction allows access services such as the National Health Service (NHS).
Net Pay
Net pay is the gross pay, minus all of the deductions. This is the amount to be paid to the employee on pay day.
Statutory Holiday Pay
Statutory Holiday Pay from 1 April 2009 stands at 5.6 weeks per year (or 28 days based on a 5 day week). As well as full time employees, a part-time worker, a fixed term worker or a worker in the first year of employment, are all entitled to paid holiday.
National Minimum Wage
National Minimum Wage applies to all UK Workers aged 16 and above who are now entitled to a national minimum hourly wage. This applies regardless of where they work, the size of the firm or the worker’s occupation.
There are a few exceptions to workers entitled to the national minimum wage. These exceptions apply to include workers aged under 16, apprentices, nannies and au pairs where they work and they share meals with the family and they do not have to pay towards their accommodation costs or meals, and genuinely self-employed people.
Statutory Sick Pay
Statutory Sick Pay (SSP) is the pay employees are entitled to be paid by their employers who are off work sick for at least four consecutive days. To be entitled to SSP the employee will need to have earned above the Lower Earnings Limit for eight weeks before the sick period.
Statutory Maternity Pay (SMP)
Statutory Maternity Pay (SMP) is the legal entitlement an employee has to a certain amount of pay to help them take time off around the time of birth and lasts for up to 39 weeks. A further unpaid period of 13 weeks is allowed as time off work. The employee will need to have earned above the Lower Earnings Limit. The qualifying period of employment is for a continuous period of at least 26 weeks up to and into the 15th week before baby is due.
HM Revenue & Customs (HMRC)
HM Revenue & Customs (or HMRC) deal with the collection of tax, national insurance contributions and VAT.
Tax code
A tax code is allocated to each employee by HMRC to specify the way that PAYE income tax should be calculated and deducted from their wages.
P6: Tax code notice
P6 tax coding notices are the forms issued to employers by HM Revenue & Customs to show tax code changes for their employees.
P45: Details of Employee Leaving Work
A P45 is a form that is completed by an employer and given to an employee when they leave. The employee should then give the P45 to their new employer when they start a new job. The new employer uses the information from the P45 to ensure that the correct amount of tax is deducted.
P46: Employee without a Form P45
If an employee does not have a form P45 or has lost it, the employer can fill out a form P46 instead.
P14 – End of Year Summary
The P14 is the form that is required to be submitted to HM Revenue & Customs at the end of each tax year for each employee. The P14 includes the gross pay and deductions for tax & National Insurance for that tax year.
P35 – Employer Annual Return
The P35 lists the total deductions for tax & National Insurance for all employees made by the employer during the tax year. The P35 includes the employer’s certificate and declaration that the information provided is complete & truly stated. The P35 accompanies the P14 – End of Year Summaries and is submitted to HM Revenue & Customs at the end of each tax year.
P 60: End of Year Certificate
At the end of each tax year, employers must give a P60 to each of the employees who were working for them at the end of the year. A P60 includes totals of the pay, tax and national insurance accumulated during the tax year.
P11D
Employers must use a P11D to tell HMRC about the value of any benefits in kind they've given to employees, including directors, who earned over £8500 during the tax year. This means benefits or expenses that effectively increase an employee’s income - such as a company car, private medical insurance or interest free loans.
