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:

1. 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.

2. 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.

3. 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.

4. 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).

   • A signed contract protects both parties and acts as an important reference document.

   • Model contracts are available to SALC members on request.

Helpful Resources

To support councils in meeting these responsibilities, we recommend the following guidance:

• ACAS – Hiring Someone: What You Need to Do

• Gov.uk – Employing Staff for the First Time

• The Pensions Regulator – Duties Checker

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:

• Claim a refund for any  overpaid tax

• 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:

• Being both employed and self-employed

• Having more than one job

• Claiming Marriage Allowance with your spouse

• Receiving a pension

• Earning consistent overtime or receiving backpay that pushes your income above the personal allowance threshold

• 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:

• 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.

• 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:

• L  – You’re entitled to the standard personal allowance

• M  – You’ve received a transfer of 10% of your partner’s personal allowance through the Marriage Allowance

• T  – Your tax code includes other adjustments affecting your personal allowance

• 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:

• Visit the official HMRC website, where detailed guidance and resources on RTI are available.

• Use HMRC’s online help tools and webinars designed to support employers with payroll reporting.

• Contact HMRC’s Employer Helpline for personalized assistance and answers to specific questions.

• 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:  

• 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.  

• 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:

• Automatically enrol eligible staff  who meet certain age and earnings criteria into a workplace pension scheme.

• Contribute a minimum of 3% of the employee’s qualifying earnings  to the pension scheme, as required by law.

• Provide clear communication to employees about their pension rights and options.

• 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:

1. 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.

2. Provide Employee Payslips and P60s:

   • 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.

   • Ensure employees receive final payslips reflecting their cumulative pay and deductions.

3. 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.

4. 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).

5. 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:

• Interest charges  on the late payment amount.

• Penalties  that increase the longer the payment is overdue.

• 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:

• Calculate employees’ tax and National Insurance contributions.

• Verify National Insurance numbers.

• 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:

• It does  not  produce payslips.

• It does  not  record deductions unrelated to PAYE, such as attachments of earnings.

• It does  not  support changes to employee details like start or leave dates once submitted.

Important Considerations

• 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.

• 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:

• Production of payslips, management of employee starters and leavers, and submission of all RTI reports to HMRC.

• 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.

• 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.

• Over 15 years’ experience working across multiple payroll platforms, providing expert guidance to streamline your payroll processes.

• Explanation of tax code changes, calculation support, and confident submission of accurate information to HMRC.

• 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:

• The employee  is required to work from home  (e.g., as part of their contractual duties or due to the nature of the role).

• The amount paid does not exceed the employee’s actual additional household costs.

• 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 .