HR · 19 March 2018

From P45s to RTI – Learn about vital payroll terminology

Get your head around payroll terminology
Get your head around payroll terminology
In previous articles in this series, we have explored how spreadsheets might not be all they are cracked up to be, as they leave too much room for human error.

We have also looked at the range of accountancy software and cloud technology options available to help small business owners that don’t have the time to spare or the know-how to juggle their own finances.

Payroll includes all the processes involved in calculating employees’ pay and deductions – such as taxes and National Insurance contributions – under the Pay As You Earn (PAYE) scheme. Business owners have to make submissions to HMRC, keep financial records, and keep employees themselves updated with payslips.

In order to choose the right software for your business, it’s important to have an understanding of the basics. Here’s a breakdown of some of the need-to-know payroll terminology.

Payslips – All employees must be issued with payslips, which must show earnings before and after any deductions, as well as the amount of any deductions that may change with each payment. They must be issued before or on payday.

Gross pay/net pay
– Gross pay is the total before deductions, and can include salary, as well as any overtime, bonuses, commissions etc. Net pay is what the employee receives after deductions: their “take home” pay.

Deductions – These are payments deducted from an employee’s salary. They can include tax, National Insurance, student loan repayments, pensions and child maintenance.

P60s – A P60 shows the tax paid on salaries in a tax year. Employees must be issued a separate P60 for each of their jobs after the tax year has ended (by 31 May for this year). The forms can be produced using payroll software, or through ordering them from HMRC. You can’t download blank versions.

P45s – A P45 is a form issued to employees when they stop working for an employer. It shows how much tax they have paid on their salary up to that point in the tax year.

RTI – Real Time Information means submitting information to HMRC in real time, every time employees receive their salaries. It means updating HMRC with PAYE information every time you pay staff – not just once at Year End. It doesn’t change how PAYE is calculated, just how it is reported.

Auto-enrolment – Every business is required to enrol eligible staff members into a workplace pension scheme. They are also required to contribute towards it. There is accounting software that can assist employers with this.

If all of these terms sound daunting to you – fear not. There’s plenty of technology you can utilise to take you through it in baby steps.

However, it has got to be done, so don’t ignore it and hope it will go away. Start looking for the software that’s the right fit for your business.

To find out more about payroll terminology, click here.


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ABOUT THE EXPERT

Letitia Booty is a special projects journalist for Business Advice. She has a BA in English Literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.

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