Running payroll

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Deductions

Your payroll software will calculate how much income tax and National Insurance to deduct from your employees’ pay. These deductions are worked out using each employee’s tax code and National Insurance category letter.

You may also need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.

Student and Postgraduate loan repayments

Use your payroll software to record if your employee needs to make student loan repayments - both in your software and on employee payslips.

You’ll need to calculate and deduct how much they need to repay based on which plan they’re on. They repay:

  • 9% of their income above £24,990 a year for Plan 1
  • 9% of their income above £27,295 a year for Plan 2
  • 9% of their income above £31,395 a year for Plan 4
  • 6% of their income above £21,000 a year for Postgraduate loans

Pensions

Make pension deductions after you take off National Insurance. You normally make pension deductions before you take off tax - check with your workplace pension provider.

You’ll also need to pay any employer contributions into your employee’s pension.

A new law means all employers will have to provide and pay into a workplace pension scheme for their employees - this is called ‘automatic enrolment’.

Payroll Giving

Your employees can donate to charity directly from their pay before tax is deducted using Payroll Giving.

Register with a Payroll Giving agency to set up a scheme. They’ll let you know how to make deductions.

As well as the usual payroll records, you must also keep the agency contract, employee authorisation forms and details of payments to the agency.

Child maintenance

You may need to deduct child maintenance directly from a paying parent’s earnings or pension.

View a printable version of the whole guide

Part of Employ someone: step by step

  1. Step 1 Check your business is ready to employ staff

    1. Prepare your business to take on employees

  2. Step 2 Recruit someone

    You need to advertise the role and interview candidates. You can use a recruitment agency to do this or do it yourself.

    1. Find out about recruiting someone yourself on Acas
    2. Find out about using a recruitment agency

    As an employer you must make sure you recruit employees fairly.

    1. Avoid discrimination during recruitment
    2. Make your application process accessible for employees with disabilities or health conditions

  3. and Check they have the right to work in the UK

    1. Find out how to check an applicant's right to work

  4. and Find out if they need a DBS check

    You may need to check someone's criminal record, for example, if they'll be working in healthcare or with children.

    1. Find out if you need a DBS check
    2. How to do a DBS check

  5. Step 3 Check if they need to be put into a workplace pension

    Check if you need to put your employee into a workplace pension scheme:

  6. Step 4 Agree a contract and salary

    When someone accepts a job offer they have a contract with you as their employer.

    1. Check what the National Minimum Wage is for different ages
    2. Check what the National Minimum Wage is for different types of work
    3. Check what to include in a contract
    4. Agree a written statement of employment particulars

  7. Step 5 Tell HMRC about your new employee

    You must tell HMRC about your new employee on or before their first pay day.

    1. Tell HMRC about a new employee
    2. Get their personal details and P45 to work out their tax code
    3. If you don’t have their P45, use HMRC’s ‘starter checklist’
    4. Check what to do when you start paying your employee