As an employer, you are legally required to carry out your duties as a tax collector for HM Revenue and Customs and have the responsibility to collect Pay As You Earn (PAYE) tax and National Insurance from your own employees.
Payslips for employees
The law requires employers to give out payslip to employees that itemize their pay and all the deductions.
The employees’s payslips must have the following information:
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Gross pay or total amount of salaries or wages payable to employees.
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Net pay or total amount of the salaries and wages due to be paid to your employees.
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Any amounts you have deducted and brief description of the deductions. This includes fixed monthly and variable deductions on each pay day.
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How you pay your employees. For example, what amounts are paid by cheque and what are paid in cash?
If you don’t provide wage slips or don't include the correct details on them, your employees can complain to an Employment Tribunal.
Gross Pay
Gross pay is the amount of salary or wages your employees earns before you make any deductions. Gross pay comprises the basic wage and any other elements of pay due in the pay period, and may include elements such as:
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Bonuses
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Commission
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Holiday pay
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Statutory Sick Pay
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Maternity pay
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Overtime
Gross pay doesn't include items such as loans or advances in wages, expenses, or redundancy payments.
Deductions
Employees are entitled to know in advance what deductions you will be making from their gross salary or pay and why. Most deductions are regulated by the Employment Rights Act 1996 and legal only when your employees' contracts clearly explain in what circumstances you will make such deductions, or when your employees provide you written consent to make them. But some deductions are exempt from regulation by the Employment Rights Act:
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Deductions for previous overpayment of wages
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Deductions under statutory provisions such as tax and National Insurance.
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Deductions that you make by law and hand over to a third party, such as an attachment of earnings order.
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Deductions that you pay to a third party where the employee consents in writing such as payments to a pension company.
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Deductions relating to strike action.
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Deductions to satisfy a ruling by a court or tribunal that an employee has to pay you a certain amount.
If you're intending to make any deductions not shown on this list, you need prior written consent from your employees you must have the consent in writing before the event that gives rise to the deduction. If you get consent after you've deducted the money, that deduction is considered unlawful. That's because you have changed an employees' pay without their consent and were in breach of contract unless you have included a provision which agreed to by the employees that in the particular circumstances you can take money out of their pay.
If you're making exactly the same fixed deductions each period, you can give out standing payment statement notifying of these deductions in advance, standing statements may be valid for up to a year. Any variable or additional deductions still have to appear on the monthly or weekly payslips, and any changes to the fixed deductions must be notified in writing or through an amended standing statement of fixed deductions.
Net pay
Net pay is what your employee's left with after the taxman and anyone else entitled to a cut has had their share; net pay amounts to gross pay minus any deductions. Net pay is often referred to as take home pay.
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