If you’re considering payroll outsourcing UK, it’s likely you will encounter plenty of jargon on your journey to finding the right outsourced payroll provider. Our A-Z should help ensure you can cut through that and make the right decision.
Anyone thinking about whether the time is right to move towards payroll outsourcing will need to assess the benefits that can be gained and the credentials of outsourced payroll providers. It’s likely you’ll come across a fair amount of lingo along the way, so our A-Z glossary of payroll outsourcing UK is designed to help you navigate the maze that is outsourced payroll options. Don’t forget to check out our top 10 tips for choosing the right outsourced payroll company.
The definitive A-Z of payroll outsourcing in the UK
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |
A: Auto-enrolment
The process through which qualifying employees are automatically entered into workplace pension schemes, often with the help of pension payroll software. Any outsourced payroll provider will need to be able to handle pension deductions from an employee’s salary when performing payroll runs.
B: BACS
BACS is a body run by UK banks, and stands for ‘Bankers Automated Clearing Service’. It is a three-day process which enables funds to be transferred from one UK bank account to another. If a payroll outsourcing company is BACS-approved, it will be able to pay employees and also bodies such as HMRC, directly on behalf of the employer.
B: Benefit-in-kind
These are benefits of the job that are given to employees outside of their salary. These are sometimes taxable, which means they will appear on payslips. Any payroll outsourcing company will need to be able to factor in benefit-in-kind tax when it comes to working out payroll.
E: EPS (employer payment summary)
Part of the real-time information submission made by an employer to HMRC. This is separate to the full payment submission and covers additional areas such as reclaiming statutory pay, claiming the Employment Allowance and Construction Industry Scheme deductions, and paying the Apprenticeship Levy.
F: Full payment submission
This is a submission that must be made by employers to HMRC, informing them of what payments have been made and any deductions that have been taken off. This would ordinarily be submitted through payroll software each time an employee is paid.
G: GDPR
Standing for General Data Protection Regulation, this is an EU provision around how data is stored and protected. The UK has retained the GDPR post-Brexit. This places a significant onus on companies to keep data safe and report any breaches quickly, with significant fines for failing to adhere to the regulation. Ensuring any outsourced payroll provider has the right processes in place is essential when selecting a company to work with.
G: Gross pay
The total amount of pay an individual receives each month, before National Insurance, tax and other deductions such as pension payments are taken off.
I: Income tax year
The annual period over which an individual’s income is assessed, and tax due. In the UK this runs from 6 April to 5 April, whereas in the US it reflects the calendar year.
I: In-house payroll team
The group of people responsible for compiling and processing payroll submissions for pay runs. This will either be for submission to an outsourced payroll provider or processed by the in-house team, depending on size and expertise. Often people will be drawn from other functions such as HR or finance.
I: IR35
Also known as off-payroll rules, IR35 came into effect in 2022 and aims to assess whether or not someone is working on a self-employed basis for tax purposes. In most cases, it is down to the employer to establish this. Some organisations will now process individuals who are deemed to be operating inside IR35 through payroll software, but as off-payroll workers. This means National Insurance and tax will be calculated but will then need to be added to an invoice sent in by the contractor.
M: Maternity pay
Maternity pay is money that is paid out to cover the period a woman will be away from work due to the birth of a child. In the UK, statutory maternity leave is paid for up to 39 weeks and typically starts when a woman goes on maternity leave. It is set at 90% of average weekly earnings for the first six weeks, and then drops to the lower of £172.48 a week (2023/24 rate) or 90% of average weekly earnings. Some employers offer enhanced maternity pay in addition to statutory maternity pay (SMP).
N: Net pay
The amount of pay an employee receives into their bank account, once deductions have been made for National Insurance, taxes and other deductions such as pensions.
N: National Insurance (NI)
A tax on the earnings of individuals earning over £242 a week. This is used to finance certain benefits such as pensions and maternity allowances.
N: New starter checklist
A list of information that must be provided by new employees, which replaced the old P46 form. Most of the information can be found on the employee’s P45 form, but a new starter checklist will be needed if they do not have one. This will include information around total pay and tax paid for the current tax year, and any deductions made for student loans.
O: OSPP (ordinary statutory paternity pay)
An amount of money paid by employers to partners (men or women) of someone having a baby or adopting a child, typically for a period of two weeks. This is currently set at the lower of £172.48 (2023/24 rate) a week or 90% of average weekly earnings. Some employers offer enhanced parental leave pay.
P: P45
A form given to employees by their employer when they stop their employment. This will show how much tax they have paid on their salary in the tax year to date, so HMRC can establish the correct tax code in a future job. This information would typically be generated by payroll software. Any new recruits coming from another job should have a P45 from their previous employer.
P: P11d
A P11d form is a document produced by an employer to inform HMRC of any expenses or taxable benefits given to employees. It will typically include information around company cars, private medical insurance and season ticket loans, and will be submitted annually using information from payroll software.
P: P60
An annual form which must be provided to employees at the end of each tax year, showing them how much they have earned and how much tax has been paid.
P: PAYE
Pay As You Earn (PAYE) is the standard way for most employed people to pay tax. It relies on the employer deducting income tax and National Insurance contributions from gross pay, meaning tax is taken off at source. This is typically calculated through payroll software.
P: Payroll
The list of employees who are entitled to receive payment and other benefits, and at what rate, which must be processed each time they are to be paid. This will typically be every week or month, and will be supplied through payroll software, possibly to an outsourced payroll company.
P: Payroll bureau services
The provision of services by an outsourced payroll provider to a customer. This will usually involve the processing of payroll, paying employees and managing communications with, and payments to, HMRC.
P: Payroll cut-off
The cut-off date by which information must be provided by an employer to an outsourced payroll company. This can vary significantly so it’s worth checking when looking for payroll outsourcing services.
P: Payroll outsourcing
The act of handing over responsibility for the processing of payroll to an outsourced payroll provider. While the employer will still need to be involved in providing accurate information, the processing of payroll and paying of employees will typically be done by the outsourced payroll company.
P: Pensions
Vehicles which allow individuals to save money for the specific purpose of retirement. Over the past decade, it has become mandatory for all employers to offer employees the chance to enrol into a workplace pension. This will see deductions from an employee’s salary made from their monthly pay, as well as an employer contribution to the pension.
P: POI (period of inactivity)
A period of time when an employer does not pay any employees. To advise HMRC of this, employers must enter the relevant dates in the employer payment summary submission.
R: RTI (real time information)
Information about pay and other benefits submitted by employers to HMRC, made at the time at which employees are paid. Introduced in 2013, it means employers now submit PAYE information to HMRC each time they pay staff, rather than at year-end. Typically this will be through payroll software.
S: Statutory shared parental pay (ShPP)
New parents may be entitled to shared parental leave (SPL) and statutory shared parental pay (ShPP) if they are having a baby; using a surrogate to have a baby; adopting a child; or fostering a child they are planning to adopt. The parents can share up to 50 weeks of leave and up to 37 weeks of pay between them. The pay and leave must be taken in the first year after the child is born or placed with the family. The current (2023/24) ShPP rate is £172.48 per week.
S: Statutory sick pay (SSP)
Money received by employees and agency workers to cover periods of time when they are ill. This stands at £109.40 (2023/24 rate) a week for up to 28 weeks, and people can claim from the fourth day they are off sick. The money will be paid by the employer and processed through payroll software.
Y: YTD (year to date)
The period from the beginning of the tax year to the current date. This is typically used in relation to the amount of money that has been earned during that tax year, or the amount of tax that has been paid.
Finding the right outsourced payroll provider can be difficult, so it’s important to ensure you understand all the terminology you’re likely to come across. It’s worth carefully assessing the market, ensuring you understand what is on offer, what your own requirements are and whether any provider has the necessary flexibility to deliver what you require. Make sure, too, to ask for references and testimonials, to ensure you find the right fit for your needs.
Armed with this information and with a strong understanding of the jargon, you’ll be well placed to find the perfect partner. To find out more about how Ciphr can help your business manage its payroll needs, download our brochure or request a demo.