Managing a global payroll can be tough, even if you’ve done it before. But managing one in the UK? That can be a real challenge, especially if you’re not familiar with the country’s tax rules, HMRC guidelines, and payroll software. Lucky for you, we’ve got all the important details you need to know right here.
UK National Insurance
Understanding National Insurance Rates in the UK can be a bit of a headache. They change every year and what needs to be deducted depends on what each employee earns. Someone on less than £8,632 a year doesn’t pay any National Insurance at all. Between £8,632 and £50,000 a year, 12% of income is deducted as National Insurance. And on anything over £50,000, 2% is payable in National Insurance contributions.
Payroll Tax in the UK
The UK uses something called the PAYE method to collect income tax from workers. Basically, it’s a system where employers deduct taxes and National Insurance contributions from their employees’ salaries, and it’s called Pay As You Earn (PAYE for short).
When a new person starts a job, they must fill out a PAYE form. It’s got all their personal details like their name, address, National Insurance Number, and tax code. This information is used to work out how much tax needs to be taken out of their pay every month.
At the end of the tax year (April 6th one year to April 5th the next) employees get something called a P60 form. It tells them how much tax and National Insurance got taken of their pay during the whole year.
Overall, the PAYE system is a straightforward and effective method of collecting taxes and helps to ensure that employees pay the proper amount of tax on their salary. The following are the UK’s PAYE tax rates for 2022–2023:
- 20% on income up to £50,270 – Basic rate.
- 40% on income between £50,271 and £150,000 – Higher rate
- 45% on income over £150,000 – Additional rate.
Minimum Wage
The UK minimum salary is governed by the National Minimum salary Act of 1998. It is the bare minimum wage that businesses are required by law to give their employees, and it is examined annually to make sure it keeps pace with inflation. Its purpose is to safeguard workers from exploitation and guarantee that they receive a reasonable wage. The rates from April 2023 will be;
- National Living Wage – £10.42
- Rate at 21-22 Years Old – £10.18
- Rate at 18-20 Years Old – £7.49
- Rate at 16-17 Years Old – £5.28
- Apprentice Rate – £5.28
Statutory Sick Pay (SSP)
In the UK, employers are required by law to provide employees with Statutory Sick Pay (SSP) when they are unable to work due to sickness or injury. It is presently set at a weekly rate of £99.35 and is paid for up to 28 weeks. For employees to be eligible for statutory sick pay, they must have worked for at least four of the previous eight days prior to becoming unwell.
To be eligible for Statutory Sick Pay, employees must also make more than the lower earning threshold. Statutory Sick Pay is typically paid for by employers, though occasionally the government subsides this. Additionally, employers are permitted to provide sick pay benefits that go beyond the statutory baseline.
Pensions
Auto enrolment pensions for workers are mandated by law for employers. These are a particular kind of workplace pension plan where employers are automatically enrolled and are required to make a set financial contribution to the retirement plans of their workers.
Employees are also expected to contribute to their pension plans, though they are free to opt out of doing so. The program’s goals include encouraging people to increase their retirement savings and guaranteeing that everyone can obtain a workplace pension.
At the time of writing, at least 3% of the overall 8% contribution rate must come from the employer.
Payslips
You must give your employee a payslip that details their pay, any deductions, and the total. This has to be completed by the pay date or earlier. The payslip must also contain the employee’s National Insurance number, the name of the company, the pay period, and the amount of any statutory payments like statutory sick pay and statutory maternity pay, among other things. Every time an employee is paid in the UK, they are required to receive a payslip.
To discuss your UK payroll requirements, contact Employer of Record UK on +44 207 863 2969
