Payroll: New employees - starters

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1 Payroll: New employees - starters When a new employee joins a business it is important that they are set up on the payroll system correctly, on a timely basis and in accordance with legislation. New starter data Before a new employee can be entered on to the payroll system the employer must obtain certain information for the employee. The new employee should be asked to provide: 1. personal details for HR records 2. form P45 from previous employment, or 3. new starter checklist where no P45 available 4. passport - so visa can be checked for right to work. 1) Personal details The following are key data for payroll and HR: full name address date of birth National Insurance number current gender next of kin start date of employment salary benefits in kind if any days and hours of work. 2) Form P45 provided The form P45 is given to an employee when they cease employment with a previous employer. (See leavers.) This is the information on the P45: box 1. Previous employer's PAYE reference number box 2. Employee s National Insurance number box 3. Employee s names box 4. Leaving date box 5. Student Loan deduction indicator box 6. Tax code at date of leaving box 7. Pay and tax to date The information in boxes 2 and 3 should be checked against the personal details form and any discrepancies clarified with the employee. The information in boxes 5, 6 and 7 must be used when setting up the new employee on the payroll. The values in Box 7 must be checked by recalculation to verify the employee has paid the correct amount of PAYE based on the total gross and tax code shown on the P45. 3) New starter checklist There are a number of valid reasons why the new employee may not have a P45: this is the employee s first job the employee was previously self-employed the employee was previously employed abroad this is the employee s first visit to the UK the employment ended in the previous tax year the employee has lost his P45 the employee did not pay tax in his previous employment the old employer has not yet issued the P45.

2 Where the new employee does not have a P45 they must be asked to complete a Starter Checklist. There are three sections on the checklist: Employee personal details - the minimum information required for payroll purposes is: full name with no abbreviations address date of birth National Insurance number current gender start date of employment Employee statement Here the employee must select the employment statement A, B or C, that applies to them. Statement A This is my first job since last 6 April and I have not been receiving taxable Jobseekers Allowance, Employment and Support Allowance, taxable incapacity benefit or a state or occupational pension. Statement B This is now my only job but since last 6 April I have had another job or have received taxable Jobseekers Allowance, Employment and Support Allowance or taxable incapacity benefit. I do not receive a state or occupational pension. Statement C As well as my new job I have another job or receive a state or occupational pension. Student loan here the employee must indicate whether they have a student loan not fully repaid and what type of student loan they have Plan 1 or Plan 2. The tax code selected is entered when setting up the new employee on the payroll. Under RTI the new starter information is reported within the FPS. 4) Passport, work visa or residence permit An employer is required to check all potential employees have the right to work in the UK. The employee must provide original documents to the employer. The employer must make and keep copies of the documents and the date they were checked. What checks to carry out: the documents are genuine, original and unchanged and belong to person providing them the dates for the applicant s right to work in the UK has not expired photos are the same in all documents dates of birth are the same in all documents the applicant has permission to do the type of work being offered including any limit on hours for students see evidence of their study and vacation times if 2 documents give different names that the applicant has documents showing why such as marriage certificate. If the potential employee cannot provide their documents the employer must ask the Home Office to check that person s immigration status if one of the following applies: The employer is reasonably sure the documents cannot be seen due to an outstanding appeal or application with the HO. they have an application registration card they have a certificate of application that is less than 6 months old. The Home Office will send a Positive Verification Notice to confirm the applicant has the right to work.

3 Generally the copied documents would be retained in the employee s personnel file in the HR department. But where the employer does not have an HR resource then they would be filed on the payroll records What to do if a new employee does not have an NI number If a new employee has been issued with a National Insurance (NI) number but has lost it you need to ask HMRC to provide the number. As part of the RTI system, you should use the National Insurance Number Verification service, an NVR submission, to do this. Where the new employee does not have a NI number but has the right to work here they must apply for one once they are in the UK. They can start working for you before the NI number is issued but only after you are satisfied they can work in the UK. The employee can call the NIM application line, see below, or make an application online. The Jobcentre Plus may require an interview with the employee at which they will need to see documents to prove identity such as passport, driving licence, birth/adoption certificate or residence permit. National Insurance number application line Telephone: Monday to Friday, to Most payroll software will allow you to create a payroll record for the employee using a temporary number until the NI number is obtained. Informing HMRC of new starter Using RTI the P45 information will be provide to HMRC on or before the employees first payday within the FPS, full payment submission. (See module on RTI.) If HMRC wish to amend the employee s tax code or cumulative pay and tax figures they will notify the employer directly. Setting up the new employee in the payroll In the new employee s personnel file, which would usually be held by HR, there should be: 1. personal details form 2. copy of passport and visa 3. P45 or starter checklist 4. NI number 5. copy of offer letter/contract of employment. 6. bank details for salary payment 7. authority for any payroll deductions loan, pensions contribution, give as you earn. From this the payroll department can obtain all the information needed for the employee to be set up on the payroll. Employees who are leaving leavers When an employee resigns from their job or their contract is terminated by the employer their final pay must be calculated accurately and paid on time. There are a number of checks and calculations that need to be considered. Let s look at the information required when processing a leaver: 1. has notice of resignation been given to the employer 2. is the employee working their notice or on garden leave 3. when is the last day of employment 4. what will be the last working day 5. is the employee due any overtime, bonus, profit share 6. is the employee due statutory redundancy pay 7. are there any additional sums to be paid relating to the termination of employment 8. is a settlement of holiday pay due to or from the employee 9. are there unpaid balances on loans to be collected

4 10. is there company property to be returned 11. will any deduction be due for damaged company property. Written notice of resignation It is good practice for employers to require the employee to put their resignation in writing. Payroll would need confirmation of the leaving date and any termination package from the employee s line manager or HR department. Last day of employment This will be the final day for which the employee is being paid. If this is not the same as the end of the payroll period there may be a pay adjustment to calculate for the days not worked or extra days worked. For salaried employees a daily rate is used to calculate the deductions for days not worked. For hourly paid employees their final pay is calculated based on the hours worked at their hourly rate up to the last day of employment. The basis for calculating a daily rate of pay should be stated in the contract of employment or staff handbook. This will confirm whether the pay calculation is based on: 365 days per year (includes bank holidays and weekends), or the five day working week, 52 weeks at five days a week, 260 working days, pro rata for part time employees. The pay period runs to the end of the month but an employee leaves on 20 January. The company calculates pay based on 365 days per year and the employee has a salary of 20, ,000/365 = per day 20 calendar days to be paid. 20 * ,096.00

5 Last working day This may be different to the leaving date if (A) the employee is taking holiday owed running up to the leave date or (b) is being paid for their notice period without working during that time. The salary due for the garden leave period is still subject to tax and national insurance deductions The employee could be employed until 20 January but not be required to work during their notice period, from 20 December. Some employers follow this practice, known as garden leave, to reduce any risk to the company. The contract of employment terminates at the end of the garden leave, in this case on 20 January, not 20 December. Pay due for holiday entitlement The employee may have taken more or less holiday than has been accrued during the employment period. As a result an adjustment may be required to deduct overtaken holidays from the final pay or add days owed as not taken to the final pay. Payroll may obtain that information from their own holiday records or from HR. The holiday year starts on 1 April and all employees receive 30 days including bank holidays. To date (20 Jan) the employee would have accrued: 30 days / 365 days = * 295 days (1Apr to 20 Jan) = days If the employee had already taken 28 days they would owe their employer for 3.75 days, this will be made as a deduction on the final pay days owed * per day = If the employee had only taken 15 days they would be entitled to additional pay of less 15 = 9.25 * per day. Settlement of loans The employee may have taken a loan from the employer which needs to be settled or the employee may have made purchases for which payment is required through payroll. This may be recovered by deduction from the final net pay or by a separate payment outside the payroll on the basis that the employee has given permission. The employee received a company loan in May to purchase a travel card of 1,200. This was being repaid at 100 per month. They have repaid 800 after the December payrun leaving a balance of 400 owed. As January is now the final pay run for the employee, the balance of the loan 400 will have to be collected as a deduction from the final net pay figure. Return of company property Before the employee leaves they will be required to return any property that belongs to the employer such as uniform, parking permit, laptops or mobile phone. If the contract allows there may be a deduction from net pay for damage to company property or lost property. Final payslip showing gross pay and deductions: Gross pay for January 20 days Adjustment for holiday overtaken (205.50) Gross pay for PAYE and NIC Repayment of loan deduction from net pay Explanation: The gross pay is calculated based on calendar days to date of leaving The adjustment for taking too much holiday is deducted from gross pay before calculating PAYE tax and NI The loan repayment of 400 is taken out of net pay after tax and NI deductions

6 The employee will be provided with a P45 part 1A for their records and parts 2 and 3 to give to their new employer. Under RTI the old employer will report details of the leaver on the FPS for the January pay run. The new employer will report details of the starter on their FPS for the employee s first pay day.