Guidance on managing payroll
Managing and recording employees' salaries, taxes, and benefits is a complex process that requires accurate recordkeeping, financial reporting, and strict compliance with legal obligations. In many councils, this responsibility often falls to the Clerk or Responsible Financial Officer (RFO). However, councils acting as employers must be aware of their statutory responsibilities, as failure to comply can lead to penalties from HMRC.
For a small fee, SALC offers a high-quality payroll service designed to ease these administrative burdens. Currently, over 200 parish and town councils are benefitting from this service.
USE THIS LINK FOR DETAILS OF SALC PAYROLL SERVICES FOR YOUR COUNCIL
What should your council know about handling salaries, annual leave, pensions, and related responsibilities?
Your council’s Financial Regulations set out the procedures and policies for salary payments, including requirements for recordkeeping and payment approvals. These regulations also cover employer obligations such as PAYE and National Insurance.
Below is a non-exhaustive list of legislation relevant to pay, employment, and taxation:
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Employment Act 2008
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Equality Act 2010
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Pensions Act 2008
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National Insurance Contributions Act 2015
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Employment Rights Act 1996
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National Minimum Wage Act 1998
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Income Tax (Earnings and Pensions) Act 2003
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Income Tax Act 2007
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Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000
Many councils manage PAYE using HMRC's Basic PAYE Tools —a free payroll software designed for employers with fewer than 10 employees. While it has some limitations, it is suitable for many councils, with the only additional cost being the time required to operate the system. You can download HMRC Basic PAYE Tools here.
To better understand broader aspects of people management—including pay, wages, and employment rights—the
ACAS
website offers clear and accessible guidance. Topics covered include the National Minimum Wage, payslip requirements, statutory sick pay, deductions from pay, and equal pay.
This can be accessed by going to the ACAS website here.
At SALC, we take data privacy very seriously. To learn how we handle personal data for those using our payroll service,
please view our privacy policy here.
FAQs
We have put together some helpful information based on frequently asked questions we regularly receive on this topic. If you wish to raise anything further with us - either use the portal enquiry function or give us a call and we will do our best to assist. We will continue to add more guidance to this page where necessary.
Hiring a New Employee? Here’s What You Need to Do to Set Up Payroll Effectively
When employing new staff, there are several key steps to take to ensure a smooth payroll setup and compliance with employment regulations:
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Confirm the Employee’s Pay Scale
Clearly define and communicate the employee’s salary or hourly rate, in line with the agreed pay scale. This ensures transparency and avoids confusion down the line. -
Calculate Holiday Entitlement
Determine your employee’s annual leave allowance, based on their working hours and contract type. This is a legal requirement and must be recorded accurately. -
Check Pension Eligibility
Assess whether your new employee is eligible for automatic enrolment into a workplace pension scheme. If so, you’ll need to provide them with the necessary information and ensure compliance with the relevant pension duties. -
Issue a Contract of Employment
A written contract should be provided outlining key terms, including pay, hours, notice periods, holiday entitlement, and pension arrangements.-
Best practice is to issue two signed copies—one for the employee and one for the employer (typically the Chair).
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A signed contract protects both parties and acts as an important reference document.
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Model contracts are available to SALC members on request.
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Helpful Resources
To support councils in meeting these responsibilities, we recommend the following guidance:
If you're a SALC member and would like access to model contracts or further advice, please get in touch with us directly.
A P60 is a year-end summary that shows the total tax an employee has paid on their salary during the previous tax year (e.g. from 6 April XXXX to 5 April XXXX ).
Employers are legally required to provide a P60 to each employee by 31 May , either in electronic format or as a paper copy .
This document is important, as it allows employees to:
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Claim a refund for any overpaid tax
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Provide proof of income when applying for benefits such as tax credits
Understanding Your Tax Code
As an employee, it’s important to regularly check your tax code and contact HMRC if you believe it is incorrect.
A variety of factors can affect your tax code, including:
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Being both employed and self-employed
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Having more than one job
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Claiming Marriage Allowance with your spouse
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Receiving a pension
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Earning consistent overtime or receiving backpay that pushes your income above the personal allowance threshold
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Having a company car
HMRC now uses Real Time Information (RTI) , submitted after each payroll, to update your tax records monthly. This allows them to adjust your tax code as needed to ensure you are paying the correct amount of tax throughout the year.
What Is a Tax Code?
A tax code is a combination of numbers and letters:
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The numbers show how much tax-free income you can earn in a tax year. For example, the common tax code 1257L means you are entitled to earn £12,570 tax-free. HMRC spreads this allowance over 12 months, so you pay tax only on income above your monthly allowance.
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This is why some people may receive a refund if they earn less later in the tax year and have overpaid tax earlier.
The letters in the tax code reflect your individual circumstances:
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L – You’re entitled to the standard personal allowance
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M – You’ve received a transfer of 10% of your partner’s personal allowance through the Marriage Allowance
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T – Your tax code includes other adjustments affecting your personal allowance
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K – You have taxable income not taxed elsewhere that exceeds your personal allowance (e.g., unpaid tax from a previous year or taxable benefits)
Important Notes for Employers
If an employee is entitled to a tax refund, the employer must process this through payroll . The refund will appear on the employee’s payslip as part of their net pay and can be reclaimed by the employer through their PAYE or NI liabilities.
Please note: A tax code cannot be changed without official notice from HMRC .
Further Information
You can learn more about tax codes on the official Government website: Tax Codes
To check or manage your tax details, log into your Personal Tax Account . Here, you can view all your employments and their associated tax codes. If anything is incorrect, contact HMRC as soon as possible to have it updated.
The SAAA website publishes details of appointments including the one for Suffolk. Use this link to visit the dedicated page on their website.
Minimum Annual Leave for Employees
In the UK, most employees are entitled to a minimum of 5.6 weeks’ paid annual leave each year. This equates to 28 days for someone working a five-day week and can include public holidays if the employer chooses.
Annual leave entitlements apply to full-time, part-time, temporary, and fixed-term employees, although the amount may be prorated for part-time workers. Employees accrue leave gradually over the year and should be encouraged to take their full entitlement to support wellbeing and work-life balance.
Employers must comply with these minimum leave requirements by law. However,
it’s important to check your contract
, as annual leave entitlements can differ—especially for council employees and those in the public sector, who often receive enhanced leave benefits.
Use this link to view our blog
explaining this subject.
Real Time Information (RTI) is a system HMRC uses to collect payroll data each time you pay your employees. To learn more about RTI filing, you can:
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Visit the official HMRC website, where detailed guidance and resources on RTI are available.
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Use HMRC’s online help tools and webinars designed to support employers with payroll reporting.
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Contact HMRC’s Employer Helpline for personalized assistance and answers to specific questions.
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Access your HMRC online account or payroll software provider for practical tools to submit RTI reports accurately and on time.
These resources will help you understand your responsibilities and ensure you comply with RTI requirements.
Use this link to view our blog explaining this subject.
Under s.112 of the Local Government Act 1972, a council can set salaries at whatever reasonable level they see fit. Councils should note that there is a national agreement based on the characteristics of a local council designed to assist them to evaluate the role.
From time to time SALC is asked if we can assist with evaluating salaries following a review in roles and responsibilities.
For those councils/HR and Personnel Committees who wish to do this themselves below is a link to current guidance:
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NALC (National Association of Local Councils) and SLCC (Society of Local Council Clerks) National Agreement on salaries and conditions of service of local council clerks in England Wales 2004 - USE THIS LINK . Whilst this document was produced some years ago, it provides a useful framework to apply when considering salary scales, taking into account s.112 as above.
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Here is a template that might be useful to help work through the exercise.
Under the Pensions Act 2008 , every employer in the UK, including councils, has a legal duty to automatically enrol eligible employees into a workplace pension scheme and make contributions towards it. If your council employs even one person, you are considered an employer and must comply with these pension regulations.
Councils must ensure they:
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Automatically enrol eligible staff who meet certain age and earnings criteria into a workplace pension scheme.
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Contribute a minimum of 3% of the employee’s qualifying earnings to the pension scheme, as required by law.
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Provide clear communication to employees about their pension rights and options.
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Keep accurate records and submit required information to The Pensions Regulator.
Both employer and employee pension contributions can vary depending on the scheme rules and any additional contributions agreed upon, but the employer’s minimum legal contribution is 3%.
For detailed guidance tailored to local councils, refer to the NALC Legal Topic Note 79 , which is available through the Member Portal. We also recommend regularly consulting The Pensions Regulator website for up-to-date information and resources— The Pensions Regulator .
Many councils offer membership of the Local Government Pension Scheme (LGPS), a widely used public sector pension plan. Councils are advised to contact their local authority pension scheme administrators to obtain detailed information on scheme rules, contribution rates, and enrolment procedures specific to their area.
By adhering to these duties, councils can ensure compliance with pension legislation and support their employees' financial security in retirement.
At the end of the tax year, employers in the UK must complete several important reporting tasks to comply with HMRC regulations:
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Submit Final Full Payment Submission (FPS):
Employers must send a final FPS through the Real Time Information (RTI) system, confirming all payments, tax deductions, and National Insurance contributions made to employees up to the end of the tax year. -
Provide Employee Payslips and P60s:
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Issue P60 forms to all employees who were employed on the last day of the tax year. The P60 summarizes the total pay, tax, and National Insurance contributions for the year.
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Ensure employees receive final payslips reflecting their cumulative pay and deductions.
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Complete Employer Payment Summary (EPS), if applicable:
If there are any adjustments, such as statutory payments, or if no payments were made in the final period, an EPS must be submitted. -
Reconcile and report benefits and expenses:
Employers should report any taxable benefits or expenses provided to employees via the P11D form (or through payroll if the benefits are processed via PAYE Settlement Agreement). -
Keep accurate records:
Employers must maintain payroll and tax records for at least 3 years after the end of the tax year for potential HMRC inspection.
Completing these steps accurately and on time helps ensure employees are taxed correctly and employers remain compliant with HMRC requirements.
A P45 is a document given to an employee when they leave a job. It summarises the employee’s total pay and the tax deducted from their earnings during the tax year up to their leaving date. The P45 is important because it helps the employee’s next employer or HMRC calculate the correct tax code and ensure the right amount of tax is paid going forward.
Employers must pay the Pay As You Earn (PAYE) tax and National Insurance contributions (NICs) they deduct from employees to HMRC by the 22nd of each month if paying electronically (or by the 19th if paying by post). This payment covers the previous month’s deductions. For example, the payment due on 22nd June covers PAYE and NICs for May.
Failing to pay on time can result in:
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Interest charges on the late payment amount.
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Penalties that increase the longer the payment is overdue.
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Possible enforcement action from HMRC, including legal steps to recover the debt.
To avoid penalties, it’s crucial to make payments promptly and keep records of all transactions. HMRC offers payment plans in certain cases if you face difficulties meeting deadlines.
If you are late paying HMRC you could be charged a penalty - you can find more information by using this link to the Government page 'Late payment penalties for PAYE and National Insurance.
Payment booklets
HMRC no longer sends printed payment booklets.
You can still pay tax you owe from the tax year 6 April 2023 to 5 April 2024 at your bank or buildings society using a payment booklet, if you already have one. To pay tax for the current tax year, you must choose another way to pay.
HMRC’s Basic PAYE Tools is free payroll software designed for businesses with fewer than 10 employees. It helps employers manage their payroll responsibilities by allowing them to:
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Calculate employees’ tax and National Insurance contributions.
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Verify National Insurance numbers.
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Submit payroll information such as Full Payment Submissions (FPS), Employer Payment Summaries (EPS), and Earlier Year Updates (EYU) to HMRC.
A step-by-step guide on using Basic PAYE Tools can be found here .
What Basic PAYE Tools Doesn’t Do
As noted by HMRC, Basic PAYE Tools has some limitations , including:
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It does not produce payslips.
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It does not record deductions unrelated to PAYE, such as attachments of earnings.
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It does not support changes to employee details like start or leave dates once submitted.
Important Considerations
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HMRC states that Basic PAYE Tools does not help you determine who to automatically enrol in a pension scheme or calculate pension contributions . You must calculate pension contributions yourself before entering amounts into the software to ensure accuracy. Failure to meet your pension obligations can result in fines.
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Employers are legally required to provide a workplace pension for certain staff and make contributions
SALC Payroll Service — Did You Know?
SALC offers a comprehensive payroll service that goes beyond Basic PAYE Tools, including:
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Production of payslips, management of employee starters and leavers, and submission of all RTI reports to HMRC.
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Full pension auto-enrolment support, re-declarations, pension calculations, and notifying you when employees become eligible for a workplace pension. We also handle all required correspondence to ensure compliance with pension regulations.
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Efficient handling of payroll queries and corrections on your behalf using our payroll software, saving you time and avoiding potentially lengthy and unproductive HMRC calls.
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Over 15 years’ experience working across multiple payroll platforms, providing expert guidance to streamline your payroll processes.
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Explanation of tax code changes, calculation support, and confident submission of accurate information to HMRC.
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Provision of all necessary year-end reports including P45s and P60s.
More information about SALC’s payroll services can be found here .
From 1 April 2025 , the National Living Wage , which applies to all workers aged 21 and over , and the National Minimum Wage , which covers workers aged from school leaving age up to 20, will increase.
It is important to remember:
“It’s a criminal offence for employers to not pay someone the National Minimum Wage or National Living Wage, or to falsify payment records.” – HMRC
Employers must ensure they pay the correct rates to comply with the law and avoid penalties.
For full details on the 2025/26 minimum wage rates, please visit the HMRC website National Minimum Wage and National Living Wage rates - GOV.UK (www.gov.uk) .
If you are a SALC payroll customer, I will automatically implement this pay increase to all relevant employees on 1 st April for you.
Reimbursing Expenses and Homeworking Allowance – Guidance for Councils
It is recommended that all employee expenses are reimbursed through payroll , as this allows the Payroll Officer to assess whether any tax or National Insurance should be deducted. This approach can help avoid the need to submit P11D or P87 forms at the end of the tax year.
In some cases, employees may be able to claim tax relief directly from HMRC by requesting an adjustment to their tax code for eligible expenses not reimbursed by the employer.
More information on claimable expenses is available via the HMRC website .
Homeworking Allowance
Councils may reimburse employees for reasonable additional household costs incurred as a result of working from home. These costs can include expenses such as heating, lighting, and telephone calls .
This is a tax-exempt payment of up to £6 per week (or £26 per month) , and can be paid without the need for supporting evidence , provided the following conditions are met:
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The employee is required to work from home (e.g., as part of their contractual duties or due to the nature of the role).
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The amount paid does not exceed the employee’s actual additional household costs.
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The payment does not exceed the current HMRC tax-free threshold.
If an employee works for multiple councils , each employer may pay up to £26 per month tax-free , as long as the combined payments do not exceed the employee's total additional costs and each council is satisfied the payment is justified.
Where a council chooses not to pay a homeworking allowance, eligible employees can still claim tax relief from HMRC on up to £26 per month, reducing the amount of income subject to tax.
More details on the homeworking allowance can be found on the GOV.UK website .
Information on the most up to date NJC pay award can be found here NJC Salary pay award 2024-2025 | SALC Website .