13 Dec Payroll Questions Answered: Employees’ Pay & Deductions
As an employer, you are obliged to operate PAYE, as part of your payroll, unless none of your employees is paid more than £112 a week, has another job, gets expenses and benefits or gets a pension. However, you do need to record their wages or salary nevertheless (payroll records). That aside, there are other types of pay you have to record, presented below:
1. Statutory Pay
There are two types of Statutory pay: (1) Statutory Sick Pay, which is £88.45 a week for up to a month (28 weeks), and (2) Statutory pay for parents* (paternity/maternity, shared parental or adoption pay). Both are taxed like normal pay and you need to record them in your software.
* you can reclaim 92% of it, and up to 103% if you paid less than £45,000 in Class 1 National Insurance (last tax year before the matching week, qualifying week or date of the official notification-contact us for more information). This means your business qualifies Small Employers’ Relief.
2. Expenses and Benefits
Company cars, uniforms and other expenses or benefits are reported at the end of the tax year (separately). However, you have to know what you can record as normal pay and what counts as expenses and benefits. Given the many rules applied, it is best to consult an accountant you trust.
3. Tips to your Staff
These are treated as normal pay, providing they are paid into a tronc or given by customers straight to your employees. In general, tips added to your customers’ cheque payments or cards are considered normal pay.
4. Other Pays Recorded as Normal Pay
- Holiday Pay (unless you use a holiday pay scheme or pay it in advance).
- Maternity suspension payments (for employees that have been suspended for their own or their baby’s health).
- Medical suspension payments (for employees that you have suspended for health-related reasons).
- Guarantee payments (other than paid holiday; this one is to employees for a day they don’t work).
- Bonuses & Cash prizes (if you run a competition).
- Payments to cover the time an employee has spent travelling.
- Honoraria (office holders’ payment), given to employees that provide a particular service (i.e. your health spa’s secretary).
- Inducement payments.
- Payments for cheques, Premium Bonds, Savings Certificates, and other payments that can be converted into cash.
For employee incentive awards, cash-in-hand payments, and non-cash payments (i.e. commodities and shares), things are different. Ask an expert accountant to inform you of all the different rules applied.
Deductions from employees’ pay (National Insurance and tax) are calculated by your payroll software and are worked out using every employee’s National Insurance category letter and tax code. That aside, you may also have to deduct:
According to a new law, you are obliged to provide a workplace pension scheme for your employees and, of course, pay into it (besides employer contributions that you also need to pay into your employee’s pension).
You usually make pension deductions after you take off National Insurance and before tax, but it is best to check with your workplace pension provider.
2. Student Loan Repayments
If you have an employee that has to make student loan repayments, you need to record it in your software and payslips*. As an employer, your role is to calculate and deduct the amount they repay (for annual income over £17,335, it is 9%).
*In the payslip, you must show pay before deductions, deductions made (i.e. National Insurance, tax, etc.), and pay after deductions.
3. Payroll Giving
You can set up a Payroll Giving scheme by registering with a Payroll Giving agency, who will inform you how to make deductions from your employees’ donations to charity (donations come directly from their pay). Just make sure you keep all details of payment to the agency, as well as employee authorisation forms and agency contact.