In this section:
Changing the interval between paydays
If you change the interval at which you pay your employees - moving from weekly to monthly payments or vice versa, for instance - you'll need to take care to ensure you continue to work out the correct PAYE (Pay As You Earn) tax and National Insurance contributions (NICs).
Note that changes to payment interval cannot currently be processed using the P11 Calculator on the Employer CD-Rom. You will therefore need to record any changes using a paper form P11 or third-party payroll software with the appropriate functions.
Shortening the interval between pay days
NICs changes
The implications for NICs of shortening your payment interval - from monthly to weekly, for example - are straightforward. From the first pay day after the change of interval, calculate NICs using the appropriate tables for the new earnings period.
PAYE changes
Calculating your PAYE tax deductions is slightly more complicated. Once again, you need to switch to using the appropriate tables for your new shorter earnings period. But the timing of this switch can vary as follows:
- if you haven't already paid the employee during the month in which the change of interval takes place, start using the weekly PAYE tables from the first payment after the change of interval
- if you have already paid the employee in the month of change, start using the weekly PAYE table from the beginning of the following tax month
Lengthening the interval between pay days
Dealing with PAYE and NICs when lengthening your payment interval is quite straightforward.
PAYE changes
You work out PAYE on the basis of the new earnings period from the first payment after the change.
NICs changes
For NICs purposes you'll need to check whether your last payment to an employee under your old shorter interval falls in the first of your new, longer earnings periods.
If it does, then the NICs from the earlier payment need to be taken into account when working out the NICs for the later payment - the total NICs must not exceed the amount that would have been payable if the two payments were added together and monthly NICs worked out on the combined total.
NICs if an employee joins your contracted-out scheme at the same time as their pay interval is lengthened
In this instance if two payments overlap in the same earnings period, then NICs are payable at the applicable contracted-out rate on the combined total of the payments.
