Gather, calculate and check payroll

How to run your first payroll

Define the employing legal entity, PAYE scheme, pay frequency, contractual pay-period start and end, and payment date. The payment date determines the HMRC tax year and tax period. The contractual pay period and HMRC tax period can differ, so store them separately.

HMRC tax months run from the 6th to the following 5th. A payment on 5 May falls in tax period 1; a payment on 6 May falls in period 2. Validate stored tax-year and tax-period values against the payment date rather than allowing them to drift independently. Pay frequency helps validate the payroll calendar, but it does not override the tax period derived from payday. Review GOV.UK’s running-payroll guidance.

Start with controlled employee records

Create a dated population snapshot from active employment records, known starters, leavers, directors and irregular workers. Do not create the population solely from people who submitted hours or appeared in the payroll calculation. That approach cannot detect a missing salaried employee or statutory-payment case.

For every person, record:

• stable employee and payroll IDs;
• employment status at the payment date;
• expectation: expected, not expected or requiring review;
• reason for inclusion or exclusion;
• presence in the previous run;
• starter or leaver effective date where relevant;
• calculation outcome or documented hold decision.

Expectation and outcome are separate. An expected employee can have positive pay, reviewed zero pay, negative net pay or a documented hold. Someone not expected in the run must be excluded with a reason. A person requiring review remains held or excluded until the expectation is resolved.

Close a dated input snapshot

Bring together the approved Lesson 6 gross-pay schedules, applicable employee instructions and approved Lesson 7 gross-to-net evidence. Record the snapshot time, owner and stable reference. Closing inputs means the normal calculation pack is fixed; it does not make every late item legally deferrable.

Keep late, pending and rejected items in an exception register. Each exception records its category, severity, source, owner, affected employee or earned period, decision, evidence and status.

Warning versus blocking

A warning can be acknowledged and accepted when the decision and evidence are recorded. A blocking exception must be resolved. Marking a blocker “accepted” does not make the payroll approvable.

Late overtime illustrates the difference. First establish when the work was earned, when Riverside knew about it, the contractual payment position and whether an off-cycle payment or controlled later adjustment is required. Preserve the earned-period reference. Do not let an internal cut-off rewrite the history.

First-live control

A genuinely new PAYE scheme with genuinely new employees is different from moving an existing payroll during the tax year. Before the first live calculation, confirm any relevant existing payroll IDs, year-to-date taxable pay and deductions, previous reporting history, director settings, pension membership and contributions, statutory-payment history and reconciled opening balances.

Lesson 3 owns detailed migration preparation. Lesson 8 verifies that the opening and migration controls are complete before calculation. Names alone are not sufficient opening data.

Give every calculation a version

A calculated version contains the run ID, version number, population snapshot, input snapshot, employee-output snapshot, calculation reference and payroll-software or statutory-rules version. Record status events for input closure, calculation, review and approval with the time and actor role.

Any calculation-affecting change creates another version. This includes a population change, gross-pay input, tax or deduction instruction, pension instruction, payment date, calculation configuration, rules/software version or manual adjustment. Materiality changes how deeply the new version is reviewed; it does not decide whether versioning occurs.

Review notes, exception ownership and other non-calculation commentary may be added to the audit trail without recalculation. They must not alter the underlying inputs or employee outputs.

Never rewrite an approved version

An approved version is not moved back to draft. If a calculation-affecting change occurs, preserve the earlier version as superseded or approval-invalidated and create the next draft version. Only one current version can be eligible for payday approval.

This prevents two reports from appearing authorised and makes it possible to answer which exact values were reviewed. A last-minute change to one employee can produce the same payroll grand total if another value moves in the opposite direction. Totals alone therefore cannot identify the approved schedule.

Preserve the status history

The status history explains when inputs closed, which version calculated, who reviewed it, which version was approved and when that approval was invalidated. Superseded versions remain readable evidence but cannot be released for payday.

Review Riverside payroll version 2

The fictional control board keeps zero-pay and held employees visible instead of measuring only people receiving money.

Three reconciliations are required:

1. Expected population agrees with the accounted-for population.
2. Employee-level outputs agree with run control totals.
3. Current values are assessed against an appropriate comparison context.

Control totals cover expected and calculated employees, positive pay, zero pay, held employees, gross and downstream pay bases, employee deductions, net pay, employer liabilities, warnings and blocking exceptions. A held employee stays in headcount controls even when contributing no pay.

Use comparison context, not a percentage alone

Compare with the previous payroll where useful, but also use approved pay changes, headcount, known starters and leavers, expected seasonal patterns and irregular-pay expectations. Record the source and threshold or reason for each variance rule.

A large change can be correct when Riverside approved extra care shifts. A small percentage change can hide one missing salaried employee. Percentage movement is a prompt for review, not proof of an error.

For a first payroll without reliable prior-period data, do not display a meaningless green variance result. Reconcile configuration, opening values, population and source records instead.

Approve for payday—not complete payroll

Separate draft, inputs closed, calculated, reviewed and approved-for-payday states. Lesson 8 stops at approval for payday. Lesson 9 will produce payslips, release payments and send FPS; Lesson 10 will reconcile and settle employer liabilities.

Approval binds the run ID and version to a deterministic snapshot of its input pack, population, employee-level outputs, control totals, calculation reference and rules version. Different employee schedules must produce different approval identities even if their totals are equal.

Before approval, confirm that population and employee outputs reconcile independently, every expected person has the required review or hold decision, blocking exceptions are resolved, warnings are acknowledged with evidence and the version is current.

Separate preparation and approval where staffing permits; this is a recommended control rather than a specific HMRC requirement. A one-person employer records an explicit self-review and exception acknowledgement.

Retain the run evidence

Keep population and input snapshots, exception registers, calculated and superseded versions, status events, employee-output snapshots, control totals, variance explanations, approvals and invalidation records. HMRC says employers generally keep payroll records for three years from the end of the relevant tax year. Employment, pension and minimum-wage records can have different retention rules. Read HMRC’s payroll record guidance.

Three key takeaways

1. Start with everyone expected from controlled employee records, then explain exclusions.
2. Every calculation-affecting change creates an immutable new version.
3. Approve the exact population, employee outputs, totals and calculation reference—not a moving total.

What comes next

Continue to Lesson 9, Produce payslips, pay employees and send FPS, which begins with this approved payday version.