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As an employer, you have a number of legal obligations to do with paying employees.
This guide aims to help you understand your obligations relating to pay and deductions through the PAYE (Pay As You Earn) system and how these entries should appear on your employee's payslip. It also provides links to related guidance on employee rights in relation to pay on the Business Link website.
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As an employer you're legally obliged to pay your workers at least the national minimum wage (NMW). The NMW applies to most workers above the school leaving age. The amount that you must pay depends on the age of the worker.
HM Revenue & Customs (HMRC) is responsible for enforcing the NMW.
More about NMW law on the Business Link website (Opens new window)
By law, every pay day you must give your employee a written record of pay and deductions, including:
Depending on the employee's circumstances you may also need to include other payments and deductions on their payslip
At the end of each tax year you must also give each employee who was working for you on the last day of the tax year, a form P60 End of year certificate providing a summary of the employee's total pay and tax/NICs deductions for year. You must give this to your employee by 31 May after the end of the tax year.
Read about PAYE tasks at the end of the tax year
More detail from Business Link on format of pay statements (Opens new window)
As an employer you must operate the PAYE (Pay As You Earn) system if your employee earns above a certain amount or meets certain other conditions.
Operating PAYE involves:
You have to pay all of these deductions to HMRC within set time limits.
Our guides below tell you when you need to start operating PAYE and how to go about calculating the deductions.
Taking on a new employee - first steps
Payroll calculations and records: an introduction
Download CWG2 'Employer's further guide to PAYE and NICs' (PDF 492K)
Download Basic PAYE Tools from the Business Link website (Opens new window)
As an employer you're liable to pay Statutory Sick Pay (SSP) to employees who are off work sick and who meet certain qualifying conditions. SSP provides a minimum level of pay to employees who are absent from work due to sickness.
You should pay any SSP due at the same time and in the same way as normal payments of wages or salary that you make to the employee.
SSP is treated like the wages or salary it replaces. You must make deductions from SSP in respect of PAYE, NICs, student loan repayments, attachment of earnings orders and pension contributions in the same way as you'd make these deductions from normal pay.
When you pay SSP to an employee you must record the SSP paid on the employee's deductions working sheet.
Read an overview of Statutory Sick Pay
How to calculate and recover Statutory Sick Pay
Employees who become parents - either through birth or adoption - are entitled to pay and time off work, provided they meet certain qualifying conditions. As an employer you must make the appropriate payments to qualifying employees.
Statutory Maternity Pay (SMP) is payable to mothers who are absent from work to have a baby.
On the birth of a baby, Ordinary and Additional Statutory Paternity Pay (OSPP or ASPP) are payable to the father or to the mother's partner (male or female). It's also payable on adoption - either to the partner of a person adopting or, where a couple adopt, to the partner who doesn't apply for Statutory Adoption Pay (SAP). For Additional Statutory Paternity Pay the couple must jointly adopt.
SAP is payable when a child's adopted. Where a couple adopt together, only one person is entitled to SAP.
You must only pay SMP, OSPP, ASPP or SAP if the employee meets certain qualifying conditions. You should pay these in the same way as you would make normal payments of wages and salaries.
You'll be able to recover some or all of the SMP, OSPP, ASPP or SAP that you pay from HMRC.
SMP, OSPP, ASPP and SAP - further guidance including calculating and recovering payments
Student loans form part of the government's package of financial help for students in higher education. They're repaid through deductions from pay once the employee's earnings reach a certain level.
HMRC is responsible for collecting repayments of student loans. However, as an employer you'll need to calculate the amount of any repayments due and collect those repayments on HMRC's behalf by deducting them from the employee's pay. You must only deduct repayments when one of the following applies:
You must record any student loan deductions that you make on the employee's deductions working sheet and pay over the amount you've deducted to HMRC, together with payments of PAYE and NICs.
Although not required by law, it's a good idea and best practice to itemise student loan deductions on the weekly or monthly payslip. You must, however, provide employees with a statement showing the total student loan deductions made in the year. You can do this on form P60 if they're still working for you on 5 April or in some other format if they leave you before this date and their payslips haven't already shown all of the deductions.
Find out how to calculate, record and make student loan deductions
As an employer you're not obliged to run a pension scheme. However, if you employ more than five people you will generally need to offer your employees access to a stakeholder pension scheme if you don't already offer one of the following:
If you give employees access to a pension scheme - whether this is one that you run yourself or one that's administered by a third party - you'll need to deduct your employees' pension contributions from their pay.
Deductions for pension contributions should be shown separately on the employee's payslip.
You must pay pension contributions that you've deducted from your employees' pay into the pension scheme within 19 days of the end of the month in which you made the deductions.
If you administer your pension scheme in-house, you must use the HMRC Pension Schemes Online service which provides a secure way of viewing information, making returns and filing reports.
More about HMRC's Pension Schemes Online service
Read about registered pension schemes and tax relief for employer and employee contributions
Follow the links below to read about the other payments or deductions you may need to make including:
Find out how to work out tax and NICs for holiday pay
Read about employee rights to holiday pay on the Business Link website (Opens new window)
Find out about guarantee pay on the Business Link website (Opens new window)
