How UK payroll works

The mental model

This lesson gives you a mental model of UK payroll. You’ll learn which work happens during setup, what repeats around every payday and which tasks happen only at certain points in the tax year. Later lessons cover each stage in detail.

Running payroll means turning approved employee and pay information into gross pay, deductions, net pay and payslips, then reporting employee payments to HMRC, making the required payments and maintaining records that explain the result. It is a controlled system rather than a single calculation.

A provider can perform payroll tasks for Riverside, but the employer remains legally responsible for completing its PAYE obligations correctly. Riverside must still supply correct information, approve the result, fund the payments and retain suitable records. This distinction is reflected in HMRC’s payroll setup guidance.

From information to a closed pay run

Set up

Before the first routine payroll, Riverside registers for PAYE when required, chooses recognised payroll software, configures the pay frequency and creates controlled employee records. It also checks workplace-pension duties and decides who prepares, reviews and approves payroll. These are initial tasks, but settings must be revisited when pay dates, software, pension arrangements or employer circumstances change.

Prepare

Five working days before payday, Maya closes the input window. She confirms the employee list, starters and leavers, approved hours, overtime, leave, salary changes, expenses, pension instructions and other deductions. Every change needs an owner and evidence. Late instructions follow a documented exception route instead of arriving through informal messages after approval.

Calculate

Payroll software uses those inputs and current employee settings to calculate gross pay, PAYE Income Tax, employee and employer National Insurance, pension contributions, statutory pay, student or postgraduate loan deductions and net pay. Riverside reviews totals, new starters, leavers and unusual values rather than assuming the result is right because the software completed.

Pay and report

Employees receive pay and an itemised payslip. Riverside normally sends the FPS on or before payday and checks HMRC’s acceptance response. Paying HMRC is a separate event: monthly PAYE liabilities are generally due by the 22nd when paid electronically or the 19th when paid by post. Riverside sends an EPS only when relevant; it is not an automatic step in every pay run.

Reconcile

After payday, the payroll report is matched to the bank payment, HMRC liability and pension schedule. The reconciled result becomes the opening point for the next pay period.

Record-keeping crosses every stage rather than beginning at reconciliation. Riverside creates and maintains employee, pay, deduction, leave, tax-code, reporting and payment records throughout the cycle. HMRC says relevant PAYE records generally need to be kept for three years from the end of the tax year they relate to. See HMRC’s payroll record requirements.

Responsibility matrix

For a very small employer, one person may perform several roles. That does not remove the need for control. The preparer should pause before releasing payments, compare totals with the previous period and retain a clear approval record. As the team grows, separating preparation, review and payment approval makes errors and unauthorised changes easier to detect.

Riverside’s monthly timetable

Riverside pays employees on 28 June. Its variable-pay cut-off is 20 June, and Maya checks the inputs and obtains approval by 25 June. Payslips are issued, employees are paid and the FPS is normally submitted by 28 June. The resulting PAYE liability is checked in July and normally paid electronically by 22 July. An EPS is sent only if Riverside has relevant employer-level information to report.

The exact timetable can differ, but every employer needs a visible cut-off, time to investigate exceptions and an available payment approver. The FPS deadline follows the payment date, not the day payroll was calculated.

Riverside’s monthly pay period is set by the employer. It is not the same thing as an HMRC tax month, which runs from the 6th of one month to the 5th of the next. Weekly, four-weekly and monthly employer pay periods can all sit within HMRC’s tax-month reporting structure.

PAYE is the system employers use to deduct Income Tax and National Insurance from employment pay. RTI is the reporting process used to tell HMRC about payments and deductions as payroll happens. The FPS reports employee payments. An EPS is used for specific employer-level information, including certain reductions or some tax months in which no employees were paid.

Practical payroll-cycle check

Final knowledge check

Three key takeaways

1. Payroll includes setup, recurring pay-run work and annual responsibilities.
2. A recurring run moves through prepare, calculate, pay and report, then reconcile.
3. The employer remains accountable for correct information, approval, funding and records even when a provider performs payroll tasks.

Next lesson

Continue to Lesson 2, Check who belongs on payroll and register for PAYE, to decide who needs payroll treatment and whether the correct employer needs a PAYE scheme.

Related resources

• 2026/27 UK payroll calendar
• UK payroll glossary
• No-pay month: FPS or EPS?