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Explaining payroll related terminology
Explaining payroll related terminology
Rebecca Russell avatar
Written by Rebecca Russell
Updated over a week ago

Not sure what all these abbreviations or acronyms stand for? No worries—we got you covered!

Department for Work and Pensions (DWP)

The Department for Work and Pensions (DWP) is a government department that administers various benefits and state pensions. DWP relies on employers submitting accurate data regarding their employees and their pay to ensure employees receive the financial support they're entitled to.

Full Payment Submission (FPS)

A full payment submission (FPS) is sent to HMRC on or before each payday, detailing the payments and deductions for each employee. The FPS includes:

  • employer details (PAYE reference, Accounts Office reference, etc.);

  • employee personal details (name, address, National Insurance Number, date of birth, gender, etc.);

  • employee employment details (directorship, starter information, leaver information, etc.);

  • employee year-to-date values (tax, national insurance, student loan deductions, pension contributions, statutory payments, etc.);

  • employee current period values (payment date, gross pay, tax, etc.)

His Majesty's Revenue and Customs (HMRC)

His Majesty's Revenue and Customs (HMRC) is the UK's tax authority. They're responsible for collecting taxes, including income tax and national insurance contributions, from employees and employers. Employers report each employee's pay information to HMRC to ensure tax deductions and contributions are calculated correctly.

Lower earnings limit (LEL)

The Lower Earnings Limit (LEL) is the minimum level of earnings an employee must reach before certain national insurance contributions come into effect. It's the threshold at which an individual starts accumulating qualifying years for state benefits, including the state pension. It also affects an employee's eligibility for certain statutory payments.

National insurance contributions (NI, NICs)

National insurance contributions (NICs) are payments made by employees and employers to the government to fund various state benefits, including the state pension, healthcare, and more.

There are different classes of NICs, such as Class 1, Class 1A, and Class 1B. Each uses different categories, rates, and thresholds that can change from year to year. Employers are required to submit this information to HMRC. Class 1 NICs are submitted via the FPS, while Class 1A is submitted via the P11D(b) and Class 1B is submitted via a PSA.

National Insurance Number (NINO)

The National Insurance Number (NINO) is a unique personal identifier used in the UK for tax and national insurance purposes. It's a combination of numbers and letters and is used throughout an individual's life for various financial or government-related matters, including accessing state benefits. Employers use this number to report an employee's national insurance and tax deductions to HMRC.

Each eligible individual in Great Britain is assigned a NINO by the DWP or, for individuals in Northern Ireland, by the Department for Social Development (DSD).

National minimum or living wage (NMW, NLW)

The National Minimum Wage (NMW) and National Living Wage (NLW) are the minimum hourly rates that an employee should expect to receive.

The NMW is based on age, and the rate usually changes annually. Employers must ensure that their employees are paid at or above the NMW rate corresponding to their age group. The NMW helps to guarantee a minimum standard of living and fair wages for workers.

The NLW is a higher minimum wage rate that applies specifically to workers aged 25 and over. It was introduced to provide a more substantial wage for older workers. It's part of the government's commitment to ensure that employees receive a fair and living wage.

Pay as you earn (PAYE)

Pay as you earn (PAYE) is the system used by employers to deduct tax and national insurance from an employee's pay each period. It simplifies the tax collection process to ensure individuals pay their taxes gradually rather than as a lump sum at the end of the tax year. The employer is responsible for reporting the deductions taken each pay period, then paying these across to HMRC each month.

Real-time information (RTI)

Real-time information (RTI) is a process introduced by HMRC to improve the accuracy and timing of payroll reporting. Here's what it includes:

  • Continuous reporting: Employers are required to submit payroll information to HMRC in "real time." This means that each time employees are paid, employers must report details like payments, deductions, and taxes to HMRC on or before the payday.

  • Employee information: HMRC uses the employee information submitted each pay period to check if employees are paying the correct amount of tax and national insurance.

  • Accuracy and compliance: RTI promotes accuracy in payroll reporting and helps minimise underpayments or overpayments throughout the year.

  • Simplifying the end-of-year process: Previously, employers would submit the values at the end of the year; any errors identified in the submission would be much more difficult to correct.

Additionally, RTI provides essential information for calculating an individual's entitlement to Universal Credit, a government welfare programme.

Student loan or Postgraduate loan (SL, PGL)

Student and postgraduate loans are financial support systems designed to help an individual cover the cost of higher education. When they finish studying, their employer is responsible for deducting repayments directly from the employee's pay under the PAYE system. Student and postgraduate loan repayments are calculated using thresholds and rates specific to the student or postgraduate loan type.

Year-to-date (YTD)

Year-to-date (YTD) values are the total amount of a particular item, such as earnings, deductions, or taxes, from the beginning of the tax year up to the present date. In payroll, YTD values are used for various purposes:

  • YTD earnings show how much an employee has earned since the start of the tax year, including regular wages, bonuses, overtime, and other payments.

  • YTD deductions show the money withheld from an employee's pay over the tax year. This can include income tax, national insurance contributions, pension contributions, and other deductions.

  • YTD tax values represent the total amount of tax an employee has paid up to the current pay period.

For further terminology related to maternity leave, please refer to our Help Centre article.

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