HR and payroll for financial services in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Running payroll and HR in UK financial services means meeting standard employment law obligations while also satisfying a layer of regulatory requirements that simply do not apply to most other sectors. The combination shapes everything from how you onboard staff to how you structure pay.
Regulatory conduct sits alongside employment law
Most UK employers worry about HMRC, the Employment Rights Act and their pension duties. Financial services firms have all of that, plus the Financial Conduct Authority (FCA) and, for larger institutions, the Prudential Regulation Authority (PRA).
The Senior Managers and Certification Regime (SM&CR) is the most direct intersection of regulation and HR. Under SM&CR, certain individuals must be approved by the FCA before they can perform Senior Manager Functions. Others — Certified Persons — must be assessed as fit and proper by the firm itself, at least annually. HR owns that certification process in practice. If someone fails a fit and proper assessment, or if a regulatory reference reveals a conduct issue, it directly affects whether that person can stay in their role. Employment decisions and regulatory obligations cannot be kept in separate silos.
Regulatory references add another dimension. When a financial services employee moves to another regulated firm, you are legally required to provide a reference covering conduct and disciplinary history for at least the previous six years. You must also disclose whether the individual was ever found not fit and proper. This differs substantially from a standard employment reference and requires careful record-keeping throughout the employment relationship, not just when someone hands in their notice.
Payroll complexity: variable pay and deferral
Financial services pay structures are frequently more complex than in other sectors. Base salary is straightforward — you deduct income tax (20% basic, 40% higher, 45% additional, on earnings above the £12,570 personal allowance) and employee National Insurance at 8% up to the upper earnings limit (2% above it), while paying employer NI at 13.8%. All of this goes through Real Time Information, with a Full Payment Submission to HMRC on or before each payday.
The complexity comes from variable pay. Bonuses, commission and discretionary awards are all subject to the same tax and NI treatment as salary, but the timing matters. A large bonus paid in a single payroll run can push an employee into a higher tax band for that period. Payroll software needs to handle this correctly — either through cumulative tax codes or careful use of the right basis.
Remuneration rules add a further layer. For firms in scope of the FCA's Remuneration Codes (or the PRA equivalent), a portion of variable pay for Material Risk Takers must be deferred, often for three to five years, and may be subject to malus or clawback. The HR and payroll teams need to track when deferred awards vest, ensure the correct tax treatment is applied at vesting (typically via PAYE), and maintain records that satisfy both the regulator and HMRC.
Pensions, carried interest and share schemes
Auto-enrolment applies to all eligible workers: employer minimum contribution is 3%, employee minimum is 5% of qualifying earnings. In financial services, many firms run arrangements well above the statutory floor, and some operate defined benefit or hybrid schemes that require more complex administration.
Share schemes — EMI options, SIPs, SAYEs — are common in this sector. Each has distinct tax treatment and reporting obligations. SAYE and SIP plan returns must be submitted to HMRC. EMI option grants require notification within 92 days of grant. These are not payroll functions in the narrow sense, but they are regularly administered alongside payroll and the P11D (due by 6 July) may carry benefits arising from share awards.
Carried interest for investment management structures sits outside normal employment income for tax purposes when structured correctly, but the boundary between carried interest and employment income is contested territory. HR and payroll teams should not make that determination independently — it requires tax counsel — but they need to know which payments they are responsible for processing and which are handled elsewhere.
Onboarding, right to work and enhanced checks
Standard onboarding in financial services must include right to work checks, which apply to every employer. In this sector, onboarding typically also includes a Disclosure and Barring Service check, credit checks (for roles with financial responsibility), and, for SM&CR roles, the FCA approval process itself. The approval process has its own timeline and cannot be short-circuited; individuals cannot perform a Senior Manager Function until approval is granted.
The Employment Rights Act 2025 strengthens day-one rights for workers, including stronger unfair dismissal protections from the start of employment. In a sector where conduct issues can emerge during a probationary period and have regulatory consequences, this places greater emphasis on clear documentation of performance and conduct concerns from the outset, rather than relying on a straightforward dismissal before qualifying period thresholds are reached.
Record-keeping and audit trails
Financial services firms face regulatory inspections and enforcement action in a way most employers do not. HR and payroll records need to be accurate, complete and retrievable — not just to satisfy HMRC, but to respond to FCA supervisory visits or subject access requests.
P60s must be issued by 31 May. P11Ds by 6 July. Certified Persons must be re-assessed annually and the outcome recorded. Conduct records must be retained for six years to support regulatory references. Building these obligations into a single, auditable HR and payroll workflow is not optional — it is the baseline standard the sector operates to.
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