What is Payroll? Managing employee payments in the UK

Once you’ve identified the error, you must tell the employee and rectify the problem in your payroll system. You should keep a record of everything.

If you overpay an employee, you may agree to a repayment plan with them or deduct future wages. It’s important to discuss this with the employee first – don’t just withhold their salary! In the case of underpayments, you need to immediately make a separate payment for the outstanding amount.

In essence, payroll works in the same way for part-time and full-time employees. However, you’ll need to calculate their benefits and entitlements on a pro-rata basis to reflect the number of hours they work.

Payroll tax rates may change every new tax year, so it’s important to stay up to date. You can subscribe to HMRC updates or use payroll software that keeps you in the know.

Penalties depend on a range of factors, such as the severity of the mistake and how many times you made an error.

Some employers give their employees access to their payroll information online through a payroll software portal or dedicated HR system. However, this isn’t a requirement – it’s up to the employer.

To add a new employee to your setup, you’ll need to enter their personal details, National Insurance number, tax code (provided in a P45 from a previous employer), pay rate, and hours.

Tips are only processed in payroll software if they’re pooled and distributed through the employer. In this case, they are treated as earnings. Otherwise, employees are responsible for declaring them.

Employers must keep records on pay, employee details, tax and National Insurance, as well as pensions, statutory payments, expenses, and benefits.

Gross pay is the amount an employee earns before deductions, while net pay is the amount earned after deductions (including tax and National Insurance).