Managing payroll in the UK is more than just paying employees—it’s about staying compliant with evolving regulations, maintaining accurate records, and ensuring your team is paid correctly and on time. Whether you’re a small business owner or part of a larger organisation, understanding the payroll landscape in 2025 is essential.

What Is Payroll?

Payroll is the process of calculating and distributing wages to employees, including deductions for tax, National Insurance, pensions, and other statutory payments. In the UK, this process is governed by HM Revenue & Customs (HMRC) through systems like PAYE (Pay as You Earn) and Real Time Information (RTI).

Key Components of UK Payroll

PAYE System

Employers must register with HMRC and operate PAYE to deduct income tax and     National Insurance from employees’ wages. Every payday, employers submit a Full Payment Submission (FPS) to HMRC detailing pay and deductions. [gov.uk]

National Insurance Contributions (NICs)

Both employers and employees contribute to NICs. In 2025, employees pay 8% on earnings between £12,570 and £50,270, and 2% above that. Employers pay 15% on earnings above £5,000.

Statutory Payments

These include Statutory Sick Pay (SSP), Maternity Pay, and the newly introduced Neonatal Care Leave and Pay, which offers up to 12 weeks of paid leave for parents of newborns requiring hospital care.

Pensions and Auto-Enrolment

Employers must automatically enrol eligible employees into a workplace pension scheme and contribute to it. This is part of the UK’s effort to ensure long-term financial security for workers.

Minimum Wage Compliance

As of April 2025, the National Minimum Wage for workers over 21 has increased to £12.21 per hour, reflecting the government’s commitment to fair pay.

Payroll Process: Step-by-Step

Register with HMRC

Before hiring, register as an employer and set up your PAYE scheme.

Collect Employee Information

Gather tax codes, National Insurance numbers, and bank detail

Calculate Pay and Deductions

Use payroll software to calculate gross pay, tax, NICs, pension contributions, and other deductions.

Submit RTI Reports

Send FPS and, if applicable, Employer Payment Summary (EPS) to HMRC.

Pay Employees and HMRC

Transfer net pay to employees and remit deductions to HMRC monthly or quarterly.

Maintain Records

Keep payroll records for at least three years to comply with HMRC requirements

2025 Payroll Legislation Updates

• Neonatal Care Leave: New statutory leave for parents of hospitalised newborns.

• Fair Pay Agreements: Sector-wide agreements are being introduced, starting with social care.

Employment Contract

Every employee should receive a contact of employment where it will detail items such as:

• Their place of work.
• Their department and department manager.
• Annual Salary.
• Paid holiday that they are entitled to.
• Pension scheme if they want to opt in.
• Redundancy details.
• Date when they will be paid.

They may be more things that will be included in the contact of employment.

Software

Software you could consider using and these are cloud based:

• Staffology
• FreshPay
• Brightpay
• Xero
• FreeAgent
• HMRC Basic PAYE Tool

If you need any further information on this, please reach out to us on:

07795 425032

gary@cubicaccountants.co.uk

www.cubicaccountants.co.uk