The Most Important Rules you need to remember when it comes to Employee Pay and Deductions


Managing a payroll isn’t an easy task – in fact, it can get downright complicated when you consider all the special provisions the law has put in place. It’s not just a matter of keeping accurate records and then figuring out how much each employee is entitled to at the end of the month based on performance or time worked. It’s also about figuring out which items need to be paid, what provisions the contract allows for, how bonuses and commissions are calculated, and how taxes work. And those are just the usual additions – we haven’t even begun to consider the deductions yet. Yes, it can become quite a hassle if you mind the small print and haven’t discovered your way through the legal maze yet. Luckily, there’s hope. Here are the most important rules you need to remember when it comes to employee pay and deductions.

Start with accurate records

It may seem like common sense but keeping accurate records is step one. Using software helps a lot with the tedious task of keeping records. Include all salaries and wages, even for those who earn less than £112 a week.

On pay and additions

Aside from the normal agreed upon salary (as per contract) you may also have to pay statutory sick pay (SSP) and statutory payment for parents (maternity, paternity, and so on).

Furthermore, there are the following to consider:

  • Bonuses
  • Commission
  • Holiday pay (unless you use a holiday pay scheme or if holidays are paid in advance)
  • Travel time
  • Honoraria
  • Cash prizes for competitions
  • Maternity or paternity suspension payments

Those deductions

If you use software, chances are your computer software can calculate the amounts that can be deducted for taxes and national insurance. These deductions can be found by using the specific tax code and national insurance category letter of each employee.

However, there are a whole range of other deductions that should not be forgotten, such as those for student loan repayments, pension deductions, any charity donation your employee chooses to make, child maintenance payments, and so on.

Once you’ve listed it all and have made an accurate accounting of what needs to be paid, don’t forget to record it officially – both government and employee has the right to a full report in the form of a pay slip. There is some software available to help you with this, but should you decide to create the pay slip manually, make sure it includes all payables and deductions in an organized manner. Still having trouble? Remember that there is professional help available such as outsourced payroll services, which can save you a lot of time and many headaches. It’s too important a job to allow mistakes to happen, after all.

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