For employers, the right way is to issue a written payslip to their employees for every payment they receive. It is not necessary to provide a printed copy, a soft copy mailed or available digitally is also acceptable.
Payslips are collaborative and informative; employees usually don’t have prior knowledge about many components. You must have a session with your employees and explain the various components so they may solicit queries and resolve their issues.
Table of contents
- Is it mandatory to issue a payslip to the employees?
- Components of payslip
- What do we mean by tax code?
- Are all tax codes similar?
- What do you mean by tax codes?
- P45 and P60
- What payroll records should I keep?
- Summing up
Is it mandatory to issue a payslip to the employees?
Yes! You must send the payslip to your employees. You must send the payslip before paying the salary to simplify the process. It will give intimidation about the salary so that the employees don’t over expect and can raise their queries.
You may skip sending payslips to independent contractors or freelancers, but it is somewhat mandatory for casual workers and full-time employees on your payroll.
The workers employed through third-party agencies usually get the payslip from the recruiting agency. If you make the payment directly, you must send the payslip.
Components of payslip
Mentioning a clear record of the earnings and deductions on the pay slip is vital.
This gives a clear picture, and there is nothing abstract between the employer and the employee.
Some of the standard components of the payslip are:
Employee identifier number
National Insurance number
Gross pay for the period
SAP – Statutory Adoption Pay
SMP – Statutory Maternity Pay
SPP – Statutory Paternity Pay
SSP – Statutory Sick Pay
Benefits in kind, if any
Income tax deduction
National Insurance Contributions
Student loan deductions
Variable Deductions, like season ticket loan
Net pay for the period
Year to date gross pay, NI and tax
What do we mean by tax code?
The HMRC issues a tax code to each employee at the beginning of the tax year.
A tax code is also issued when there are changes, such as switching to a new job role.
The tax code indicates the income allowed from that particular employment before the employer deducts the tax amount.
To calculate the final tax-free amount, you can find the product of the tax code and 10 (or add a “0”).
For instance, the standard tax code for an employee is 1257L with no adjustments. It depicts the standard personal allowance of £12,570, the amount an employee can receive as income before taxes are deducted.
The “L” stands for the tax code status and implies that this comes under the regular unaltered tax code.
Are all tax codes similar?
The most common tax code for employees is the 1257L tax code, though it is not mandatory.
The numerical part can be variable for several reasons, and the last letter tells us more about the reasons. For instance, if an individual has multiple employers, it is acceptable that one of them deducts the tax for all.
If the individual has absorbed all personal allowance in the pay from their main employer’s tax code, the second employer is directed to use the “0000 BR” tax code.
This indicates that a zero personal allowance applies to this employment, and all the tax payments will be calculated at the basic rate.
One of the common codes ends in “K” and implies the code is overall negative.
Hence, the corresponding figure, multiplied by 10, is clubbed with the employer’s income and post those, it is taxed. HMRC publishes a complete list of letters in tax codes and their explanation.
What do you mean by tax codes?
When the HMRC lacks information to determine the correct tax code, it issues an emergency tax code.
This implies that the individual will have to pay emergency tax, which comes with a higher rate, to ensure they don’t underpay.
Emergency tax codes are depicted in several letters. Once HMRC gets the missing information, the most suitable transport is issued.
P45 and P60
A P60 is issued to an employee at the end of each tax year. This summarises the total tax amount deducted from that particular employer in the last financial year.
A P45 is somewhat similar, and this is issued to an employee leaving part way through a tax year. The tax year in the UK starts from 06 April and runs till 05 April of the following year. It depicts the tax paid concerning that employment in the current tax year.
Onboarding new employee is easier if they have P45, but in many cases, the individuals don’t have this.
This could be because it is their first job. You can ask to fill out the new starter form required by the HMRC for assigning the correct tax code. Or else, such individuals might get an emergency tax code.
What payroll records should I keep?
The employer must provide payslips to all employees and the calculations used to determine each component.
All vital information, such as the rules and regulations, must also be shared with the employee.
The unpaid leaves, bonuses and rewards, overtime details or holiday allowance details must also be backed up.
Usually, employer use payroll software, which stores all the necesssary informtion.
To sum up, a payslip is an essential tool to resolve all the queries that can arise in your employee’s mind.
It also gives a clear indication of the employee’s salary so that they do not over-expect on the payment date and is also necessary for reference and documentation purposes.
Hence, try to issue employees a detailed pay slip every month.