A glossary of UK payroll terms
Reviewed by Mellow Editorial Team, HR & payroll content team
UK payroll comes with its own dense vocabulary. This glossary covers the terms you will encounter most often when running payroll, reading a payslip, or dealing with HMRC.
Core payroll concepts
Gross pay — an employee's total earnings before any deductions. This includes basic salary, overtime, bonuses, and taxable benefits.
Net pay — what the employee actually receives after income tax, National Insurance, pension contributions, and any other deductions have been taken.
Pay As You Earn (PAYE) — the system HMRC uses to collect income tax and National Insurance from employees in real time, through the employer's payroll, rather than via a self-assessment tax return.
Tax code — a code issued by HMRC that tells the employer how much of an employee's pay is tax-free. The most common is 1257L, which reflects the standard personal allowance of £12,570. An emergency or non-standard code results in more or less tax being deducted.
Personal allowance — the amount an individual can earn before paying income tax: £12,570 in 2026/27. Earnings above this are taxed at 20% (basic rate), 40% (higher rate), or 45% (additional rate), depending on the total level of income.
National Insurance
National Insurance contributions (NICs) — compulsory payments made by both employees and employers that fund certain state benefits, including the State Pension.
Employee NICs — deducted from the employee's gross pay. The rate is 8% on earnings between the Primary Threshold and the Upper Earnings Limit, then 2% above that.
Employer NICs — paid by the employer on top of the employee's gross pay at 13.8% (Category A) above the Secondary Threshold. This is a direct cost to the business and is not visible on a payslip.
National Insurance category — a letter that determines which NIC rates apply. Category A is the standard for most employees. Other categories apply to apprentices, employees over State Pension age, and certain other groups.
HMRC reporting and year-end forms
Real Time Information (RTI) — the regime under which employers submit payroll data to HMRC on or before each payday, rather than annually. The main submission is the Full Payment Submission (FPS).
Full Payment Submission (FPS) — the report sent to HMRC every time employees are paid. It includes gross pay, deductions, and year-to-date totals for each employee.
Employer Payment Summary (EPS) — a supplementary submission used to report adjustments such as statutory pay reclaims, or to notify HMRC of no payments in a period.
P60 — an annual certificate given to every employee who is on the payroll at the end of the tax year (5 April). It summarises total pay and deductions for the year. Employers must issue it by 31 May.
P45 — issued when an employee leaves. It shows pay and tax to date for the current tax year and is used by the new employer to set up payroll correctly.
P11D — a form reporting benefits in kind and expenses that fall outside PAYE — such as private medical insurance or a company car. It must be submitted to HMRC by 6 July after the end of the tax year, and employees also receive a copy.
Payroll ID — a unique reference that identifies an individual employee within the employer's payroll system, used in RTI submissions.
Auto-enrolment and pensions
Automatic enrolment — the legal duty to enrol eligible workers into a workplace pension scheme. Eligible workers are generally aged 22 to State Pension age and earning above a minimum threshold.
Qualifying earnings — the band of earnings used to calculate minimum pension contributions. Minimum contributions in 2026/27 are 3% from the employer and 5% from the employee.
Salary sacrifice — an arrangement where an employee agrees to reduce their gross pay in exchange for an employer contribution (often pension). Because the contribution comes from gross pay, both the employee and employer pay less NIC.
Opt-out — an employee's right to leave the pension scheme within a set window after enrolment and receive a refund of contributions. Employers must re-enrol eligible employees periodically even if they have previously opted out.
Statutory payments and deductions
Statutory Sick Pay (SSP) — the minimum sick pay an eligible employee must receive when they are off ill, paid by the employer.
Statutory family leave pay — covers Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Adoption Pay (SAP), and Shared Parental Pay (ShPP). Each has its own eligibility criteria and calculation rules.
Attachment of earnings order — a court order requiring an employer to deduct a set amount from an employee's pay and forward it to a third party, typically to recover a debt.
Directors' NIC — company directors are assessed on an annual earnings period for NIC purposes rather than per pay period, which can produce different deduction patterns across the year.
Employment Rights Act 2025 — legislation that strengthens day-one rights for workers, with implications for probationary periods, unfair dismissal claims, and flexible working requests. Employers should ensure payroll and HR processes reflect the updated rules.
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