Despite the continuing trend of outsourcing payroll functions to accountancy firms, stakeholder expectation remains high that people professionals demonstrate a good understanding of how payroll works.

Employees subjected to muddled explanations, delayed remuneration or persistent miscalculation quickly become disengaged.  Persistent incompetency can even lead to reputational damages at an Employment Tribunal.

People Professionals who can simplify the steps required to navigate payroll signal sound stewardship of core responsibility competently.  We will begin by listing the first principles that lead to payroll.

  • Be sure your organisation is ready to employ staff
  • Recruit someone to work
  • Evidence they have the right to work in the UK
  • Rule out whether a DBS (Enhanced/Basic) check is necessary
  • Determine if they need to be put into a workplace pension
  • Agree on the contract and salary
  • Notify HMRC that you have a new employee
PAYE Online for employers
Enrol and use HMRC’s PAYE Online service to send payroll information to HMRC, to view the balance of what you owe, and to access tax codes and notices about your employees

Employees should receive their payslips before or on payday.  Payslips include the following details.

➦ Total pay before deductions (gross)
➦ Total pay after deductions (net)
➦ Amount of variable deductions (i.e., Student Loan, National Insurance)
➦ Deconstruction of how wage is paid (multiple payment methods used)
➦ Amount of fixed deductions (i.e., union subscriptions)

Total remuneration depends on the employees' tax code.  The included letters with a tax code will vary according to an employee's circumstances.  The numbers represent the tax-free income for the tax year - i.e., 'the tax year 2022/2023 = 6 6 April 022 to 5 5 April 023'.

A simple calculation to learn GBP paid before taxation is multiplying the tax code's given number by 10.

The meaning of each letter can be found in the link below.

Understanding your employees’ tax codes
Understand the letters and numbers in your employee’s tax codes, know when to update someone’s tax code

The significance of each tax year comes as it ends with the statutory increase to the National Minimum Wage (NMW) and National Living Wage (NLW).  The total of each statutory wage is grouped by age: NLW is for those over 23, and NMW is for those under 23.

NLW is a negotiated settlement based on recommendations from businesses and trade unions.  NMW is a percentage of median earnings (with the goal of reaching 66% by 2024).

Effective April 2022, the statutory rates are as follows.

  • 23 and over = £9.50
  • 21 to 22 = £9.18
  • 18 to 20 = £6.83
  • Under 18 = £4.81
  • Apprentice = £4.81

To verify, as an employer, whether you are paying the correct NMW/NLW or owe your employees money from the previous tax year, please refer to the calculator linked below.

National Minimum Wage and Living Wage calculator for employers
Check if you’re paying a worker the National Minimum Wage, the National Living Wage or if you owe them payments for the previous year.

It should not be taken for granted that the legal minimum is universally complied with.  In August 2021, HMRC released ten more egregious excuses made to enforcement officers by businesses not paying the NMW.

  1. “She does not deserve the NMW because she only makes the teas and sweeps the floors.”
  2. “The employee was not a good worker, so I did not think they deserved to be paid the NMW.”
  3. “My accountant and I speak a different language; he does not understand me, so he does not pay my workers the correct wages.”
  4. “My employee is still learning, so they are not entitled to the NMW.”
  5. “It is part of UK culture not to pay young workers for the first three months as they have to prove their ‘worth’ first.”
  6. “The NMW does not apply to my business.”
  7. “I have an agreement with my workers that I will not pay them the NMW; they understand, and they even signed a contract to this effect.”
  8. “I thought it was okay to pay young workers below the NMW as they are not British and therefore do not have the right to be paid it.”
  9. “My workers like to think of themselves as self-employed, and the NMW does not apply to people who work for themselves.”
  10. “My workers are often just on standby when there are no customers in the shop; I only pay them when they are serving someone.”

These statements are absurd and wrong.

An exciting outlier to NLW and NMW is the voluntary 'Real' Living Wage (RLW).  This is for employers choosing to go beyond the statutory minimum.  The RLW is yearly calculated by the Living Wage Foundation in September (2022/2023 = 1515 September 2022 to 1414 September 023).  Data influencing RLW comes from sources estimating the 'true' cost of living in the UK (with a separate London band).  The RLW applies to all workers over 18 and has a yearly implementation date of 14 May.

Effective September 2022, the voluntary rates are as follows.

  • Across the UK = £10.90
  • In London = £11.95

A list of the 10k UK employers who have opted to pay RLW is linked below.

Accredited Living Wage Employers

As People Professionals, we are responsible for correctly managing employees' payroll.  It is a trust-based responsibility that a crucial part of working life will be driven without hassle.  Get payroll right the first time, and it will mitigate further complications down the line.

Sources:  ACAS, CIPD, CIPP, GOV.UK, Living Wage Foundation, People Management

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