If you’re hiring employees in the United Kingdom, it’s crucial to have a smooth payroll process and to remain compliant with all local labor laws. And it doesn’t have to be complicated – that’s where Remote’s Global Payroll service comes in.
United Kingdom payroll overview
Per the United Kingdom government website (HMRC), it’s mandatory for employers to do the following (on or before payday) in order to stay compliant with local labor laws:
- Record the employee’s total pay
- Calculate all deductions
- Calculate the National Insurance contribution that you (the employer) are required to pay on any earnings above £242 a week
- Produce unique payslips for each UK employee
- Report their pay and deductions to HMRC (His Majesty’s Revenue & Customs) as a Full Payment Submission (FPS)
In the UK, tax periods run from the 6th to the 5th of the following month. Payment to HMRC is due by the 22nd of each month. Incorrect or late payments may result in penalties.
The tax year runs from April 6th to April 5th.
Remote’s Global Payroll platform makes UK payroll quick and painless. Best of all, you don’t have to leave the Remote platform to manage payroll for your team members all over the world!
United Kingdom paycheck example
On a typical UK payslip, you’ll find the employee’s payroll (Works) number, tax code, National Insurance number and National Insurance table.
Any payments made to the employee – in this case, their monthly pay and RSU payments – will be listed and used to calculate their taxable gross pay. Deductions, such as tax and National Insurance, will be calculated on and deducted from their taxable gross pay. This will leave you with the employee’s net pay.
In the Year to Date section, you will see the total amount of taxable gross pay paid by you to the employee in this tax year, along with the total amount of income tax, and the total amount of both employee and employer National Insurance contributions.
A basic payslip in the UK looks like this:
When does the UK fiscal year run?
The fiscal year in the UK starts on April 6th and runs until April 5th of the following year.
What is the typical payroll frequency in the UK?
Typically, salaried employees in the UK will receive their pay one each month.
When do UK employees get paid?
Remote’s Global Payroll customers can select their own pay date.
When is the payroll cut-off date in the UK?
For Global Payroll customers, the cut-off date will be based on the pay date that is selected.
What is Pay As You Earn (PAYE)?
Pay As You Earn, or PAYE, is the system through which the government collects taxes and National Insurance contributions from employees. It is run by HMRC. As an employer in the UK, you must be registered for PAYE. Employees’ tax codes will be provided by HMRC and processed by us in payroll.
What statutory deductions are required in the UK?
Statutory deductions are payroll deductions that are required by the government. In the UK, these may include:
- Income tax
- National Insurance
- Student loan payments
- Child maintenance payments
Some of these deductions are situational and will not apply to all employees.
What is the National Insurance system?
The National Insurance in the UK is the government entity through which citizens gain access to benefits like state pension system and their jobseeker’s allowance. It is similar to the Social Security system in the United States.
Both employers and employees (who earn over a small minimum threshold) must contribute to the National Insurance during payroll. These payments are automatically calculated by Remote’s Global Payroll service.
What are student loan payment deductions?
Employees who took loans from the UK government to fund their college education may be eligible to have their repayments deducted through payroll based on the terms of their repayment plan. Employees should declare any loans when they complete their onboarding checklist, and HMRC will also run their own checks and automatically send any updates through to the payroll.
There are four types of repayment plans, as outlined here on the UK government website.
What are child maintenance deductions?
Child maintenance payments are deducted during payroll if an employee:
- Is a parent who chooses to make these payments directly from their earnings
- If an employee does not make the payments they owe
- If they pay less than they owe
- Or if they do not make child maintenance payments on time
If child maintenance deductions are required, employers may receive a Deduction from Earnings Order (DEO) from the Child Maintenance Service.
To find out more about child maintenance payments and DEOs you can visit the UK government website here.
Is a pension fund required in the UK?
Yes, it’s mandatory for UK employers to set up and contribute to a pension fund for their employees, per the Pensions Act of 2008. Exceptions are made when employees elect to opt out of the plan.
What are the exceptions to pension requirements for employers in the UK?
If the company’s PAYE scheme is just a Company Director, the payroll can be exempted from any workplace pension duties. In this case, an exemption needs to be applied for with the Pensions Regulator (TPR). A Company Director can also be enrolled into a pension scheme if they wish.
If a PAYE scheme is exempted, it is the duty of the employer to advise the UK Pensions Regulator if the payroll changes at a later date, i.e. if an employee is taken on board and pension requirements apply.
The legislation also allows an employer to delay the enrollment of an employee into the pension scheme by up to three months. The three months postponement can apply at outset and initial payroll set-up, but also for any new joiners in the future. There is a requirement to issue communication to an employee as they do have the right to elect to opt into the pension scheme ahead of the three month deferral period.
Can I use Remote’s pension provider in the UK?
You will need to secure a pension plan for your UK employees. This is not included in our Global Payroll offering. If you would like, we can introduce you to the broker we use for our EOR employees, however you will be responsible for managing the plan.
Who is Remote’s pension provider?
In the UK, Remote works with Smart Pension, managed by BKL.
What is the UK pension contribution?
In the UK, employers are required to contribute a minimum of 3% of the employee’s salary toward their pension plan. The employee contribution minimum is 5%. You can find more information about pension contributions and requirements on the UK government website, here.
What is sick leave in the UK?
In the UK, employees are entitled to Statutory Sick Pay, or SSP.
When must Statutory Sick Pay (SSP) be paid?
SSP is paid when the employee has not worked due to sickness for at least four days in a row. These are called “qualifying days.” If the employee worked at all during the day they became sick and had to leave work, that does not count as a qualifying day.
The employee does not have to be paid for the first three days they weren’t working due to sickness. The only exceptions to this are if the employee was sick and receiving SSP within eight weeks prior, or if they are sick with COVID-19, in which case there are no waiting days and SSP payments should start on their first day out of work due to sickness.
You stop paying SSP when the employee returns to work or if they no longer qualify.
Annual leave entitlement accrues as normal while an employee is earning Statutory Sick Pay.
How much are SSP payments?
SSP payments are £99.35 per week for up to 28 weeks.
To find out more about SSP and eligibility you can visit the UK government website here.
What is Statutory Maternity Leave (SML) in the UK?
The UK requires employers to offer Statutory Maternity Leave (SML) and Statutory Maternity Pay (SMP) to qualifying employees.
How long is Statutory Maternity Leave (SML)?
Statutory Maternity Leave in the UK is 52 weeks. It includes:
- Ordinary maternity leave – first 26 weeks
- Additional maternity leave – last 26 weeks
How do employees qualify for SML?
To qualify for SML, employees must:
- Provide the correct notice and proof of pregnancy, including a MAT B1 form filled out by their doctor)
- Earn at least £120 per week on average
- Have worked for their employer continuously for at least 26 weeks before the “qualifying week” (the 15th week before the expected week of childbirth)
How much is Statutory Maternity Pay (SMP)?
SMP is paid for up to 39 weeks. For the first six weeks of maternity leave, employers must pay 90% of the average gross weekly earnings with no upper limit.
For the following 33 weeks, employers must pay either £156.66 per week or 90% of the average weekly earnings (whichever is lower).
Taxes and National Insurance will be deducted and pension will be withheld as with normal wages.
Annual leave and public holiday entitlement accrue as normal while an employee is on maternity leave.
Up to 103% of SMP is reclaimable through HMRC (depending on the size of payroll). Remote will do this for our Global Payroll customers.
To find out more about SML, SMP, and eligibility criteria you can visit the UK government website here.
What is Shared Parental Leave (SPL) in the UK?
In the UK, an employee may be eligible for Shared Parental Leave (SPL) time and Statutory Shared Parental Pay (ShPP) if they are having a baby, if they are using a surrogate to have a baby, if they are adopting a child, or if they are fostering a child they intend to adopt. (There is different criteria for birth parents and those adopting or using a surrogate.)
How long is Shared Parental Leave?
Employees are eligible to share up to 50 weeks of leave and 37 weeks of pay between the two parents. To find out more about ShPP and SPL and eligibility criteria you can visit the UK government website here.
How much is Statutory Shared Parental Pay (ShPP)?
In the UK, Statutory Shared Parental Pay, or ShPP, is available to employees who are having a baby with their partner and meet the qualifying criteria.
ShPP is £156.66 per week or 90% of the average weekly earnings, whichever is lower.
Any of the statutory leave payments can be topped up at your (employer) discretion.
Essential payroll forms in the UK
Essential payroll and tax forms in the United Kingdom include the P45, P60, and P11D. Below is an overview of each form type. You can find additional information about these forms on the UK government website here.
What is a P45 form?
A P45 form is required anytime an employee leaves your organization. As the employer, there are four parts of the P45 that you are responsible for issuing.
You must send Part 1 of the P45 to the HMRC when your employee quits, is terminated, becomes redundant, or when they leave for any other reason. This is to notify the HMRC that the employee is no longer working for you.
You will then provide Part 1A of the P45 to the employee for their own records.
There is also a Part 2 and 3 that you must provide to the employee for them to share with their next employer. Part 2 is for the next employer’s records and Part 3 is so they can register them as a new employee with the HMRC.
All of this is to ensure that the employee and employers pay the correct amount of tax.
You should keep your own copies of all P45 forms for at least six years.
As your payroll service provider, Remote’s Global Payroll service will generate all P45 forms for you and our payroll specialists are available as needed. We will also ensure your new employees are onboarded correctly with their P45s from previous employers.
What is a P60 form?
A P60 form in the UK is a crucial document you must issue to each of your employees by May 31st for the previous tax year. It details all tax and National Insurance contributions the employee made that year, as well as your (employer) National Insurance contributions plus any deductions or statutory payments.
UK employees use their P60 forms (or payslips) to prove their income when applying for loans or mortgages – they are similar to the W2 forms issued to US employees.
You must keep copies of all P60 forms you issue for at least three years.
Remote’s Global Payroll service will automatically generate P60 forms for your UK employees before May 31st of each year.
What’s the difference between a P45 and P60?
P45 forms are only issued when an employee leaves your organization, whereas the P60 form is issued every year as a record of the employee’s earnings and tax and insurance contributions.
What is a P11D form?
A P11D form in the UK is used to report the cash value of benefits provided to employees and applicable expenses. For example, supplemental health insurance.
Employers are required to provide this form to the HMRC for each employee and director earning above a small minimum threshold (£8,500 annually). This information is used by officials to calculate the amount of income tax and National Insurance contributions the employee owes.
If you are providing employee benefits, you must provide these forms to the HMRC. The submission deadline is July 6th of each year, for the previous tax year.
Remote’s Global Payroll service can help you generate your P11D forms with ease and submit them by the reporting deadline. Our team of payroll specialists is also available to answer any questions you might have about this process.