Payroll is making sure everyone is paid the right amount, on time, with the correct deductions — and reporting it to HMRC. It's a specialist, always-in-demand skill where accuracy and confidentiality are everything (people notice immediately if their pay is wrong).
Gross to net — the core calculation
An employee's gross pay is reduced by deductions to arrive at net (take-home) pay:
Gross pay − Income Tax (PAYE) − National Insurance − Pension − other deductions = Net pay
PAYE and tax codes
PAYE (Pay As You Earn) is how UK income tax is collected — the employer deducts it each pay run and pays it to HMRC.
- A tax code (e.g. 1257L) tells you how much tax-free allowance an employee has.
- Codes change (new starters, benefits, second jobs); using the wrong code means the wrong tax.
National Insurance (NI)
Both the employee and the employer pay NI contributions based on earnings above thresholds. Employer's NI is a real cost of employing someone — important for budgeting.
Pensions — auto-enrolment
By law, eligible employees are automatically enrolled into a workplace pension, with minimum contributions from both employee and employer. Payroll handles the deductions and submissions.
Payslips and reporting
- Every employee must get a payslip showing gross pay, deductions and net pay.
- Employers report each pay run to HMRC in real time (RTI) — a Full Payment Submission (FPS) on or before payday.
- Year-end produces P60s (annual summary) and P45s (when someone leaves).
Why accuracy and confidentiality matter
- Accuracy — underpaying causes hardship and complaints; overpaying is hard to recover; wrong tax/NI creates HMRC problems.
- Confidentiality — salary data is highly sensitive personal data (GDPR). Never discuss or share it inappropriately.
- Deadlines — payroll runs to an immovable date; people must be paid on time.
Put it to work
For a £30,000 salary, list the deductions you'd expect between gross and net. Then explore finance software & Excel.