Payroll has its own unique terminology that can be confusing when you first try to find your way around it.
To help you we’ve created the payroll jargon buster – a list of the most commonly used terms, together with definitions written in straightforward language. It should make things a little easier.
A Glossary of Payroll, the Payslip & Deductions Terms
For an employer, payroll is the financial record of gross pay, such as salaries and bonuses, and deductions, including tax and national insurance contributions. A payroll system enables the employer to organise these financial records, to calculate the deductions and to generate the appropriate paperwork.
Payslip is a slip of paper given to the employee each time they are paid. It can be on any type of paper, but it must show the gross pay (before tax is taken off), details of all deductions, including tax and National Insurance. It must also show the net pay, after all deductions.
Gross Pay is the total pay before taking off tax, national insurance and any other deductions. Gross Pay can include salary, overtime, holiday and sick pay, bonus, commission and other payments.
Amounts of money taken off the gross pay for tax & National Insurance. Deductions may also include other items such as staff contributions to a pension scheme.
Tax (income tax)
Tax for PAYE (pay-as-you-earn) is an amount collected by employers when making salary or wage payments to employees on behalf of HM Revenue & Customs (HMRC). The amount deducted is paid to HMRC and is, in effect, a provisional payment of tax on the employee’s income. The amount withheld is determined by tax tables that determine the amount of tax to be deducted for the salary or wage paid to the employee.
National Insurance Deductions
National Insurance is a compulsory deduction of a fixed percentage of an employee’s earnings, allowing access to benefits and services such as the National Health Service (NHS).
Net pay is the amount of money actually paid to the employee on pay day. It is the gross pay, minus all of the deductions.
Traditionally this has been the cash or cheque received by an employee for services given to an employer. Over time this has generally been replaced by BACS or bank transfers from the employer into the employee’s bank account.
Further useful information:
- P11D forms
- Managed payroll service
- Bureau payroll service
- Offshore payroll
- Internet payroll services
- Encrypted emails
- Payroll Giving
A Glossary of Holiday Entitlement, Minimum Wage, Sick Pay, Pay and Time off work for Parents Terms
Statutory Holiday Pay
From 1 October 2007 most UK workers have the right to 4.8 weeks paid holiday per year (or 24 days based on a 5 day week). A part-time worker, a fixed term worker or a worker in the first year of employment, are entitled to paid holiday. There is no maximum age limit for qualifying for paid holidays. A child under school leaving age is not entitled to paid holidays. There are some groups of workers who are not entitled to paid holidays. For a member of the armed forces, police, or civil protection services, the law does not automatically give a person the right to paid holiday. In such cases reference needs to be made to the contract of employment for rights to holiday and holiday pay.
National Minimum Wage
Workers in the UK aged 16 (and above school leaving age) or over are now legally entitled to a national minimum hourly wage, regardless of where they work, the size of the firm or the worker’s occupation. This includes casual labourers, agency workers, home workers, workers on short-term contracts and workers employed by subcontractors.
There are some workers who are not covered by the national minimum wage. these include workers aged 16 and under, certian 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, genuinely self-employed people. There are also special rates of pay for agricultural workers.
Statutory Sick Pay
Statutory Sick Pay (SSP) is paid by employers to employees who are off work sick for at least 4 consecutive days. The employee will need to have earned above the Lower Earnings Limit for 8 weeks before the sick period. Further information is provided in the E14 (& Supplement) Helpbook produced by HM Revenue & Customs.
Statutory Maternity Pay (SMP)
This is a legal entitlement to a certain amount of pay to help a mother 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. Further information is provided in the E15 (& Supplement) Helpbook produced by HM Revenue & Customs. Fathers and adopted parents are also entitled to pay & leave.
A Glossary of HM Revenue & Customs, Tax Codes & some of the ‘P’ forms Terms
HM Revenue & Customs (HMRC)
HM Revenue & Customs (or HMRC) was created by the merger of the Inland Revenue and Her Majesty’s Customs and Excise in 2005. It deals with the collection of tax, national insurance contributions and VAT.
Each employee has a tax code to specify the way that PAYE income tax should be calculated and deducted from their wages. If an employee has more than one job, they can have a different tax code for each.
P6: Tax code notice
P6 tax coding notices are issued to employers by HM Revenue & Customs to show tax code changes for their employees. They are usually generated by HMRC where they have reviewed an employee’s tax record & current situation or after receiving a completed P46 from the Employer.
P38S: Student Employees
A form issued to Students for work done in holiday periods only which allows a maximum gross pay to be paid during those holiday periods, worked in any one year, without tax being deducted. National Insurance deductions are still made.
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 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.
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.
P60: 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.
If there’s anything else you don’t understand, please get in touch. Call us on 0800 018 0590 or email Robin Mead on email@example.com. We’re happy to help (and we’ll add your query to this list).