A payroll set-up checklist for UK employers
Reviewed by Mellow Editorial Team, HR & payroll content team
Setting up payroll correctly from the start saves you from costly corrections, HMRC penalties and employee frustration. This checklist covers every step a UK employer needs to complete before running a first payslip.
Register as an employer with HMRC
Before you can pay anyone, you need a PAYE reference number. Register with HMRC as an employer — you can do this online, and HMRC aims to process registrations within around five working days, though it can take longer. Do this early; you cannot run payroll legally without it.
You will receive:
- A PAYE reference (also called an employer reference number, format: 123/AB456)
- An Accounts Office reference (for paying HMRC what you owe)
Keep both safe. You need them every time you file or make a payment to HMRC.
Collect the right information from each employee
Before you process a first payment, gather the following from every new starter:
- Full legal name, address and date of birth
- National Insurance number — chase this promptly; you can run payroll without it temporarily, but you must obtain it
- Starter checklist (or a P45 from their previous employer) — this tells you which tax code to apply
- Bank account details for BACS payment
- Right to work documentation — a legal requirement, separate from payroll but often collected at the same time
Apply the correct tax code from day one. Using the wrong code means employees are over- or under-taxed, and you will need to correct it later.
Set up your payroll software
HMRC requires you to submit payroll data using Real Time Information (RTI). Every time you pay an employee, you must send a Full Payment Submission (FPS) to HMRC on or before payday. Paper payroll is not an option for RTI compliance.
Choose software that:
- Is recognised by HMRC (check their published list of compatible products)
- Handles tax code updates and National Insurance category letters automatically
- Can produce payslips, P60s (due by 31 May after each tax year end) and P11Ds (due by 6 July, for expenses and benefits in kind)
Configure the software with your PAYE and Accounts Office references before you run anything.
Understand what you owe on top of gross pay
Payroll is not just about what employees receive — it also determines what you owe HMRC and what you must deduct. For the 2026/27 tax year, the key figures are:
Income tax deducted from employees:
- Personal allowance: £12,570
- Basic rate: 20% (up to the higher-rate threshold)
- Higher rate: 40%
- Additional rate: 45%
National Insurance:
- Employees pay 8% on earnings within the main band, then 2% above the upper earnings limit (category A)
- You as the employer pay 13.8% on earnings above the secondary threshold
Your payroll software calculates these automatically once it has the correct tax codes and NI categories — but you should understand the numbers so you can spot errors.
Also factor in the Apprenticeship Levy if your annual payroll bill exceeds the threshold, and any salary sacrifice arrangements that affect gross pay calculations.
Enrol eligible employees into a workplace pension
Auto-enrolment is a legal obligation, not optional. You must:
1. Assess your workforce on the first payday (and every payday after that for new starters)
2. Automatically enrol eligible employees — broadly those aged 22 to state pension age earning above the earnings trigger
3. Contribute at least 3% of qualifying earnings as the employer; employees contribute a minimum of 5%
4. Write to each enrolled employee within six weeks explaining the scheme
5. Register your compliance with The Pensions Regulator by the declaration of compliance deadline
Choose a pension provider before you run your first payroll. Many payroll systems integrate directly with pension platforms, which simplifies the contribution upload process.
Know your ongoing filing and payment obligations
Once payroll is live, these are the recurring deadlines you must not miss:
- FPS on or before every payday — this is the RTI submission
- Employer Payment Summary (EPS) — file this instead of an FPS in any month you pay no employees, or to reclaim statutory payments
- PAYE and NI payments to HMRC — monthly or quarterly depending on the size of your bill, due by the 19th (cheque) or 22nd (electronic) of the following month
- P60 to each employee by 31 May after the tax year ends
- P11D by 6 July for any taxable benefits provided to employees
Also stay current with statutory payments. Statutory Sick Pay, statutory maternity, paternity, adoption and shared parental pay all run through payroll. The Employment Rights Act 2025 has strengthened day-one rights for employees, so review your policies on statutory entitlements if you have not already.
For employers managing workers across multiple countries, how Mellow runs payroll across six countries on one platform explains how a single system can handle different jurisdictions without duplicating admin.
Statutory annual leave entitlement is 5.6 weeks (28 days including bank holidays for a full-time five-day week) — this does not run through payroll directly, but holiday pay calculations do, so your payroll records need to reflect actual pay accurately.
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