Payroll Processing in the UK: A Step-by-Step Guide for Employers

Paying employees correctly and on time is one of the most important responsibilities for any employer. But behind every payslip is a process full of calculations, deadlines, and compliance with HMRC rules.

For many organisations, payroll can feel overwhelming. The good news is that with the right systems and structure, it becomes a smooth and reliable part of running your business.

In this guide, we’ll explain what payroll processing is, how it works in the UK, and the essential steps to get it right.

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What Is Payroll Processing?

Payroll processing is the administration of employee pay. It covers everything from calculating gross wages and deductions to issuing payslips and submitting Real-Time Information (RTI) to HMRC.

In the UK, employers are legally responsible for:

• Deducting Income Tax and National Insurance contributions (NICs)
  
  
• Managing pensions auto-enrolment and employer contributions
  
  
• Handling statutory payments such as sick pay, maternity or paternity pay
  
  
• Reporting and paying HMRC on time
  
  

Traditionally, these tasks are manual and time-sensitive, and errors can lead to penalties and loss of employee trust. With modern systems like Workforce, these responsibilities are built into the platform, simplified and streamlined, reducing the risk of errors and missed deadlines.

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Key Elements of Payroll Processing

To run payroll effectively, employers must have:

• Accurate employee data: Correct tax codes, personal details, and contracts
  
  
• Verified hours and pay rates: Reliable timesheets or rostering systems for hourly workers
  
  
• Up-to-date knowledge of legislation: E.g., National Minimum Wage updates, pensions duties
  
  
• Clear records: HMRC requires payroll records to be kept for at least three years
  
  

‍How Payroll Processing Works (Step-by-Step)

Running payroll in the UK follows a clear sequence of tasks. Each stage plays a vital role in ensuring employees are paid correctly and employers remain compliant with HMRC requirements.

1. Collect employee information
Accurate tax codes, contracts, bank details, and benefits are essential to avoid errors down the line.

2. Record hours worked
Timesheets or scheduling systems are needed to track hours, absences, and overtime. Reliable records prevent disputes.

3. Calculate gross pay
This includes salaries or hours and pay rate, plus bonuses, and overtime.

4. Apply deductions
Employers must deduct Income Tax, NICs, pensions, student loans, and other authorised payments. Mistakes here can trigger HMRC penalties.

5. Calculate net pay
Take-home pay after deductions. Transparency helps maintain employee trust.

6. Approve payroll
Managers or HR should review and approve payroll runs before payments are made.

7. Pay employees
Net pay must be transferred on time, usually via BACS or another payment method. With Workforce’s integration with Modulr, payments can be sent directly and securely.

8. Distribute payslips
Payslips must show gross pay, deductions, and net pay. 

9. Report to HMRC
Each pay period, Real-Time Information (RTI) must be submitted to HMRC.

10. Pay HMRC
Employers must pay Income Tax and National Insurance contributions to HMRC. 

By following these steps, employers can ensure payroll is accurate, employees are paid on time, and compliance obligations are met.

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How Workforce Approaches Payroll

Although the steps of payroll are the same everywhere, how employers complete them can vary. Some rely on spreadsheets, some outsource, and others use software to bring everything together. Workforce’s approach is designed to reduce repetitive admin and make payroll easier to manage:

• Timesheets connect with payroll: With a click of a button, approved hours flow straight into pay runs.

• Pay runs are structured: You can review pay items, make adjustments if needed, and finalise payments with a clear audit trail.
  
  
• Payslips are digital-first: Once payroll is posted, employees can securely access their payslips online or via the mobile app.
  
  
• Compliance is supported: Deductions and RTI submissions are built into the process, so important steps aren’t missed.
  
  
• Accounting stays aligned: Journal entries are generated for easy reconciliation with finance systems.
  
  

This approach doesn’t change the legal responsibilities of running payroll in the UK, but it does make the process more straightforward, consistent, and less prone to error.

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FAQs About Payroll in the UK

1. How often do I need to run payroll in the UK?
Most employers pay staff weekly or monthly. The frequency should be set in employee contracts.

2. Do small businesses need payroll software?
Yes, HMRC requires RTI submissions, and payroll software makes compliance far easier than running payroll manually.

3. What records must I keep for payroll?
Employers must keep payroll records for at least three years to comply with HMRC rules.

4. Can I outsource payroll entirely?
Yes, many businesses use payroll bureaus to handle processing, reporting, and compliance on their behalf.

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Simplify Payroll with Workforce

Payroll processing in the UK can feel complex, but it doesn’t have to be overwhelming. By following clear steps, staying compliant with HMRC rules, and using the right tools, you can reduce admin work and ensure your people are always paid correctly and on time.

Ready to simplify payroll? Book a demo with Workforce today and see how we can help.

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