The ultimate guide to payslips

Payslips are a record of how much an employee has been paid, and a way to track any deductions from their pay (such as through salary sacrifice schemes or tax).

In the past, payslips were always printed on paper, but more companies are switching to a paperless system for extra convenience and to help reduce their environmental impact. Either way, the information it must include is the same.

There are four distinct kinds of workers who are not automatically entitled to a payslip. Those are:

• People who are not employees or workers (such as contractors or freelancers)

• People in the police service

• Merchant seaman

• Crew members on share fishing vessels.

If they don’t fall under one of those categories, then you need to give them a payslip. Contractors and freelancers are responsible for paying their own taxes, so they’ll usually need you to sign invoices as an alternative.

Payslips tell an employee how much they’ve earned, how much they’ve paid in tax and how much they’ve lost due to salary sacrifice. This gives them more certainty over their salary, helping them feel more financially secure and helping them to budget. That means a much-needed boost to financial well-being.

However, this isn’t the only thing payslips can be used for. They’re also a means to prove your identity (for example, if an employee wishes to access certain online tools like the Government Gateway).

There’s also the simple fact that things can sometimes go wrong. Payslips provide vital evidence if you or an employee come into conflict with HMRC's records or need to prove a loss of earnings.

If someone wants to apply for a mortgage or rent a property, they may need to use three months of payslips as evidence of earnings.

Yes. Payslip legislation is pretty straightforward in this regard. 

We’ll go into the specific things to include on a payslip in more detail later in this guide, but the broad overview of what needs to be included is as follows:

• Earnings before and after deductions (these are referred to as gross amount and net amount respectively)

• The amount of deductions that may change each time you’re paid (National Insurance and tax are the key examples)

• The number of hours worked, if pay varies by time worked

You’ll also need to explain any deductions that are fixed in amount, although this can be written on the payslip or on a separate document.

Payslips must be provided on or before payday.

If an employee doesn’t receive a payslip when expected, they can attempt to raise the issue informally. If that doesn’t help, they can then raise a grievance. Beyond that, they can bring you to an employment tribunal.

It’s in your best interest to make sure your employees get their payslips consistently on time before things reach their point. Nobody wants their business to be known as one that doesn’t do their due diligence and gets HMRC knocking at their door.

There are several pieces of information that should be included within a payslip or on a separate document provided alongside the payslip.

One of the things that can make payroll seem so complicated is the amount of jargon and acronyms attached to it. Here’s your quick guide to some of the most common payroll acronyms.

PAYE

PAYE stands for Pay As You Earn. This is how most employees pay tax. It’s why employees don’t get lumped with a big tax bill at the end of a fiscal year.

GP

GP simply stands for Gross Pay, the amount of earnings an employee received before deductions.

TP

TP stands for Taxable Pay. You can calculate this by taking the gross pay from an employee’s payslip and deducting any tax reliefs (such as pension contributions).

NP

NP stands for Net Pay. After tax deductions, this is the money that ends up in an employee’s bank account.

NIC

NIC stands for National Insurance Contributions.

BACS

BACS stands for Banker’s Automated Clearing System. This simply refers to a way of transferring money from one bank to another, as long as both are in the UK.

SSP

SSP stands for Statutory Sick Pay. Employees are entitled to SSP from the fourth day they are off sick.

Parental pay (SMP, SPP, SAP and SHPP)

• SMP is for Statutory Maternity Pay

• SPP is for Statutory Pattern

• SAP is for Statutory Adoption Pay

• SHPP is for Statutory Shared Parental Pay

BA

BA stands for bereavement allowance.

CHB

CHB stands for Child benefit, which is an allowance for parents with children under 16.

CTC

CTC stands for Cost to Company. This includes the entire salary package of each employee.

Before payday rolls around, you’ll need to collate all the relevant information discussed above. A lot of this can be covered as part of the onboarding process. You will need to keep this information up to date with any changes, or you risk running into issues due to inaccurate data.

From there, you’ll either need a template in your spreadsheet software, or another method of creating the payslip itself for each employee.

If you want to automate much of this process, then swapping to a payroll system as offered by iTrent or People First will help remove a lot of the tedious admin.

If that’s not enough, we also offer a managed service, where we will work with you to take some or all of your payroll requirements off your hands, depending on how much control you wish to retain.

You might think that when the payslips are sent out, that’s your job done. But often employees will have a lot of questions about them, especially if they think there’s a discrepancy. You need to be ready to field these questions, but improving financial literacy among your employees will help reduce them. Here’s some ways to do that.

If you want to simplify your entire payroll process, from entering data to printing payslips, then MHR’s solutions are your key to making the complex simple. You can automate a number of key workflows and simplify the payslip production process. That’ll give you consistent results every single pay cycle.