Payroll services glossary

Payroll services are complex processes subject to regularly changing employment, tax and accounting legislation and requiring an understanding of technical terminology. We have provided this glossary to clarify commonly used terms in the payroll services industry.

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We have set out below a glossary of the most commonly used terms used in payroll processing to be read alongside our payroll services articles.

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Payroll services terminology

AEO (Attachment of Earnings Order): An AEO is a court order, sent to an employer and employee, that allows an employee’s creditor to require the employer to take funds directly from an employee’s wages to repay the creditor (e.g. for rent or mortgage payments).

Auto enrolment: Auto enrolment makes it compulsory for all employers to enrol their employees in a Workplace Pension Scheme and for that employer to contribute to that pension scheme.

BACS (Bankers’ Automated Clearing System): BACS is an electronic system that facilitates the making of payments from one bank account to another. Payments are mainly direct debits or direct credits and take three working days to clear.

Benefits in Kind: Also known as non-cash benefits these are taxable items or services that are provided to employees in addition to their salary. They can include private healthcare, company cars, gym memberships and travel expenses.

CHAPS (Clearing House Automated Payment System): CHAPs is an electronic system that facilitates same day payments between bank accounts.

CIS (Construction Industry Scheme): CIS is a set of rules used in the construction industry which govern how contractors pay their subcontractors.

Deductions: Deductions are amounts taken out of an employee’s pay e.g. NI.

Deduction of Earnings Order: A DEO is an instruction from the Child Maintenance Service or the Child Support Agency (CSA) to an employer to make deductions from an employee’s wages as a way of collecting child maintenance. A DEO can be voluntary by an employee or imposed by the relevant organisation.

DEA (Direct Earnings Attachment): A DEA is an instruction to deduct money from an employee’s wages to repay monies owed by the employee to the Department of Work and Pensions (DWP).

EAS (Employers Alignment Submission): An EAS is a one-off submission (comprising company and employee details) made by an employer when it starts submitting employee data online under RTI to HMRC. It enables HMRC to check whether the employer’s payroll system’s records match the information that HMRC holds. An EAS submission is compulsory for large employers (with 250+ employees) and businesses using more than one payroll system or provider. It is optional for other employers and will be automatically submitted with the employer’s first FPS of the tax year.

EPS (Employers Payment Summary): An EPS is submitted to HMRC under RTI in cases of adjustments made to the monthly or quarterly payments to HMRC, if the employer hasn’t paid any employees in the tax period or if no employees are going to be paid in future months.

EYU (Earlier Year Update): An EYU allows an employer to make amendments to submissions made earlier in the year.

FPS (Full payment submission): An FPS is sent (under RTI) by the employer to HMRC every time it pays an employee (e.g. weekly, fortnightly, monthly). The FPS should be submitted on or before the date of payment to the employee. The FPS comprises the payments and deductions made for each employee and is used by HMRC to calculate an employer’s monthly PAYE and NIC statement.

GDPR (General Data Protection Regulation): GDPR is a European Union (EU) regulation made in 2016 covering data protection and privacy. It sets out guidelines for the processing of personal information of individuals residing in the EEA (European Economic Area).

Gross pay: Gross pay is the total pay that an employee receives before any Deductions.

HMRC (Her Majesty’s Revenue and Customs): HMRC is a department of the UK Government that is responsible for the collection and administration of taxes and related regulatory areas.

Income Tax: Income Tax is based on an employee’s income and calculated depending on the amount of tax earnt in the tax year and HMRC’s tax rates. The level of Income Tax paid by an employee will depend on their Tax Code.

Irregular Employment Payment Indicator (IEPI): An employer will set the IEPI on an individual’s FPS to show that the employer’s payments to that individual will be made on an irregular or infrequent basis. 

MAT B1 (Medical Reference for SMP): The MAT B1 enables a pregnant woman to claim SMP.

Net pay: Net pay is the total pay than an employee receives after Deductions.

NI (National Insurance): Introduced in 1911, NI is a contribution of earnings, calculated at varying rates, and paid by employers, employees and self-employed workers and acts as a form of social security establishing entitlement to certain state benefits.

NIC (National Insurance Contribution): NICs are payments made by employers and employees into National Insurance with HMRC.

NINO (National Insurance Number): A person’s NINO is 9 characters long an acts as a unique identifier for that person.

NVR (National Insurance Number Verification Request): An NVR is sent by an employer to HMRC to verify or obtain a NINO for new employees. An NVR cannot be sent to HMRC until the employer has started to send PAYE information in real time.

OPL (Ordinary Paternity Leave): OPL is the right of a father to take a number of weeks’ leave following the birth or adoption of a child subject to the father satisfying certain conditions.

Pension: A Pension is a long-term saving plan for retirement that an employee pays into will working.

P11D (Expenses and Benefits): A P11D is a tax form sent by employers to HMRC, for all employees and directors earning over £8,500. It sets out the cash value of any work-related expenses and taxable benefits that an employee has received in the tax year which have not been put through payroll. Employees also receive a copy of the P11D.

P45: A P45 is a statement legally required to be given by an employer to an employee when that employee leaves his/her employment. It includes details of the employee’s pay and taxes deducted in the tax year to the date of departure. Part 1 is automatically sent by the employer to HMRC, Part 1A is given to the employee for their records and Part 2 and 3 is given to the employee to provide to their new employer.

P60: A P60 is a and End of Year Certificate issued to by an employer to all employees (still employed by the employer at the end of the tax year) at the end of the tax year summarising the employee’s pay and all deductions (e.g. tax and NI) in the relevant year.

PAYE (Pay As You Earn): PAYE was introduced in 1944 and is a system under which an employer deducts income tax and NI contributions ‘at source’ from an employee’s wages and sends those sums to HMRC, before paying the net wages to the employee.

Payslip: All employees must by law be issued with a payslip showing pay before and after Deductions. They must be issued before or on payday and can be printed or in electronic form.

POI (Period of Inactivity): A POI is a tax period where an employer has not paid any employees. An employer should submit a POI EPS instead of an FPS.

RTI (Real Time Information): RTI was introduced by the UK government in 2013. Employers must submit PAYE information, electronically, to HMRC ‘on-or-before’ every date that they pay their employees.

SAP (Statutory Adoption Pay): SAP may be available to an employee if he/she is adopting a child with a partner.

SER (Small Employer Relief): SER allows employers, where the combined employer and employee NI contributions made in a year did not exceed a set level, to reclaim a proportion of certain statutory payments that the employer made to employees.

SML (Statutory Maternity Leave): SML sets out the period of maternity leave that an employer must provide to new mothers who satisfy certain conditions.

SMP (Statutory Maternity Pay): SMP sets out the period of SML that will be paid by the employer.

SPL (Shared Parental Leave): SPL allows employees to end maternity or adoption leave early so that one or both parents can take the outstanding leave in a more flexible way during the baby’s first year. Parents can take the leave separately or together.

SPP (Statutory Paternity Pay): SPP is the pay that an employee is entitle do during their OPL.

SRP (Statutory Redundancy Payment): An SRP will depend on an employee’s age and length of service with the business and is subject to certain conditions. Certain amounts of redundancy pay will be free of income tax and NI.

SSP (Statutory Sick Pay): An employee who is off work for at least 4 consecutive days can claim SSP from their employer for up to 29 weeks subject to certain conditions.

ShPP (Statutory Shared Parental Pay): ShPP allows employees to share maternity or adoption pay in line with SPL.

Student Loans Deductions: These are deductions from an employee’s pay where an employee has an outstanding student loan with the UK Government that needs to be repaid. They are subject to certain weekly/monthly thresholds that should be met before deductions can be made.

Starter Checklist: Under RTI the Starter Checklist replaced the P46 and is filled out by new employees when they start a new job if they do not have a P45. The Starter Checklist provides all employee information and enables the allocation of a temporary Tax Code until HMRC automatically correct it and notify the employer’s payroll.

Tax Code: Each employee has a Tax Code assigned by HMRC which represents the tax-free part of an employee’s income and is used to calculated the level of income tax to deduct from an employee’s pay.

Tronc: A Tronc is a separately organised pay arrangement used to distribute tips, gratuities and service charges, as well as a sophisticated way of saving NICs particularly in the hotel and hospitality industries.

Workplace Pension: A Workplace Pension (otherwise known as an occupational or work-based pension) is a savings plan arranged by an employer on behalf of its employees.

YTD (Year to Date): A YTD figure is the total figure up to the current point in the year.

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