Back to basics - Payslips

Guiding you through complex payroll procedures.

Every payday, payroll departments across the UK issue payslips to their employees. Nowadays, many companies and payroll bureaux prefer to provide details of an employee’s pay on an electronic payslip, which can be viewed by the employee online and printed if necessary. Some employers even provide a facility whereby the employee can have the amount of their net pay texted to their mobile phone on payday.


Under the Employment Rights Act 1996 (ERA), all employees have the legal right to a payslip. This includes casuals that are employed or workers employed under a personal contract of employment. Employment agencies are also obliged to provide their temporary staff paid through the payroll with an itemised pay statement or payslip. But the ERA provisions do not cover anyone who is not an employee, which would include independent contractors and people working freelance.

Originally, the law specified that only employees working a certain number of hours had the legal right to a payslip. Employees who normally worked fewer than eight hours a week were not then legally entitled to a payslip. Furthermore, in an organisation that employed less than 20 employees who normally worked fewer than 16 hours a week they were also excluded unless they were continuously employed by their employer for at least eight hours a week for a minimum of five years.

The right to a payslip or itemised pay statement for all employees is specified under section 8 of the Employment Rights Act (1996). Failure to provide a payslip can result in the employee making a complaint to an employment tribunal, but the complaint must be made within three months.

Pension payrolls

A number of organisations operate pensioner payrolls for employees who have retired to a company pension. The payroll would also include dependants of employees and pensioners who have died. This type of payroll is often very large, including the payment of thousands of pensions. Some organisations operate their own pension payroll, while others would rely on their insurance company or actuaries to administer the pension on their behalf.

According to the legislation, only employees are legally entitled to a payslip and consequently, pensioners fall outside of the scope of these

provisions. Employers and pension providers can choose to continue issuing pensioners with a payslip but due to the cost of issuing the payslip and the postage to send it to the pensioner’s home address, many organisations do not issue a payslip each payday. Instead, they provide a payslip normally for the first payday in the tax year and then any payday where there is a change such as an increase to the pension payment or if the tax code changes. It is common practice for employers to issue a payslip if the pensioner’s net pay varies by a specified amount, such as £1 or £2.

Although this keeps the pension payers’ costs to a minimum it does bring other problems. As pensioners get older they sometimes get confused about how the pension has been paid, for example, by cheque, or into a bank account or building society. Furthermore, when a pensioner moves house as they frequently do, without a payslip to remind them, they often forget to inform the pension payer of their new address. However, paying the pension into a bank or building society account is preferable to paying the pension by cheque as these are often not cashed.


The legislation states that a payslip must contain details of the payments made to the employee plus the amounts of the individual deductions with a description. If there is insufficient room on the payslip to enter all the deductions then any fixed deductions can be lumped together but the employer must issue a statement at least once a year detailing the fixed deductions. Variable deductions cannot be added together and shown as one amount on the payslip. It is not necessary to list all the payments to date on a payslip but most employers do, so as to enable the employee to keep a running total of their pay and tax to date. It is particularly useful for cumulative totals to be shown on the payslip if the employee is repaying a student loan, as it will enable them to keep track of the amount repaid to ensure that they do not overpay the loan.

Salary sacrifice

If an employer operates a salary sacrifice scheme they are allowed under HM Revenue & Customs (HMRC) rules to show the pre-sacrificed salary on the payslip with the corresponding amount that is being sacrificed as a reduction rather than a deduction. This is often done so that the employee can see the amount that has been sacrificed from their salary. Furthermore the pre-sacrificed salary may be used to calculate overtime and pension contributions if the employer chooses to do so. However, for the salary sacrifice to be valid the reduction in salary must be a permanent change that is reflected in the contract of employment.

Court orders and DEOs

Where the court orders including Arrestments in Scotland and Deduction from Earnings Orders (DEOs) from the Child Support Agency are deducted, the employer can, if he wishes, recover an additional £1 as an administration fee. This administration fee of £1 can only be charged if a deduction or partial deduction has been made. Employers often waive the administration fee of £1 but where it is deducted, it must be shown separately on the payslip with a description.

Many employers now pay their employees’ expenses via the payroll. Some employers itemise each expense payment separately on the payslip while others add the total amount together and show it as a taxable or non-taxable amount as applicable.

The net payment must also be shown on the payslip and where the net pay is split into different payment methods then each part of the payment must state the method under which it is paid. For example, total net pay is £1,800; £1,000 paid by BACS; £500 paid by cheque and £300 paid in cash.

Personal details

Regardless of whether or not it is on paper or delivered electronically, the payslip contains a wealth of information, which can be a good thing – but not always. For example, many payslips contain not only the statutory information regarding payments and deductions but also an employee’s National Insurance number (NINO), bank details and home address. Employers often record this information on the payslip to remind employees of the information that they hold on file for them, although it is fair to say that a number of employees fail to notice that the address for instance on the payslip is out of date.

However, many employees like confirmation of the NINO on the payslip in case they have to fill in a form for HMRC or contact the tax office by telephone as they are usually asked to quote this information. In fact, many would protest if the employer suggested that this information was going to be removed. But should a payslip fall into the hands of a fraudster, they would have confirmation not only of an employee’s salary and earnings, but also their NINO, bank details and possibly their home address. Armed with this information, a criminal could use this information with devastating effect. For example, an employee was working abroad for his employer and each month the payroll department sent his payslip to him by post. When some of the payslips did not arrive, he contacted the payroll department and they sent him duplicates. A short time later, the employee discovered that someone had intercepted his post containing the payslips and was able to raise a loan in his name for £9,000.

Communicating messages

Of course, employers can utilise the payslip to communicate items of interest to their employees. For example, to inform them that the Christmas payday will be early, tax codes with an “L” suffix have been increased by so many points or news about the issue of the form P60. It should be noted that the P60 must be issued on paper and only to employees employed as of 5 April. Pensioners in receipt of a pension at

5 April are also entitled to a paper P60.


The CWG2 guide instructs employers to operate tax code BR on any payments after leaving if they are made after the P45 has been issued. However, the employer must then notify the employee that a payment has been made in addition to those shown on his P45. It is no longer necessary for employers to issue a letter to the ex-employee relating to a payment after leaving; they can relay the information via his payslip or by email although a payslip must still be issued. However, the message must make it clear that if the employee has to complete a tax return he will need to declare the additional pay and tax as it is not included in his P45. 

Linda Pullan is Head of Payroll Alliance.