How to process payroll: 8 simple steps for HR teams

Payroll processing is the end-to-end process of calculating and managing employee pay, deductions and statutory reporting. It includes calculating gross and net pay, deducting Income Tax and National Insurance contributions, submitting payroll information to HMRC and distributing payslips to employees. 

Accurate payroll processing is really important for meeting PAYE obligations, maintaining employee trust and avoiding compliance issues or penalties. Whether payroll is managed in-house or through an external payroll provider, businesses need reliable processes and systems to ensure employees are paid correctly and on time.

Payroll processing brings several core payroll activities together. These include managing employee data, calculating pay, handling deductions and meeting HMRC reporting requirements. Here’s each of those in a bit more detail. 

• Employee data management
  Payroll processing starts with accurate employee records, including tax codes, National Insurance numbers, salaries, working hours and bank details.

• Gross and net pay calculations
  Employers need to calculate gross pay, apply deductions and contributions and work out each employee’s final take-home pay.

• Tax and National Insurance deductions
  Payroll teams must deduct Income Tax, National Insurance contributions, pension payments, and any other relevant deductions through PAYE.

• HMRC reporting and compliance
  Employers are responsible for submitting payroll information to HMRC through Real Time Information (RTI) reporting, including Full Payment Submissions (FPS) and Employer Payment Summaries (EPS).

• Payslips and payroll record-keeping
  Employees must receive itemised payslips, while employers must maintain accurate payroll records to meet HMRC compliance requirements.

The right HR and payroll software can help UK businesses manage payroll more accurately, reduce manual admin, and stay compliant with HMRC requirements. When choosing payroll software, it’s important to make sure it supports PAYE and Real Time Information (RTI) submissions, including Full Payment Submissions (FPS) sent directly to HMRC.

Payroll software can also help automate repetitive tasks such as calculating deductions, generating payslips, and syncing employee data between HR and payroll systems. Personio integrates with payroll and accounting tools to help centralise employee data and reduce the risk of manual errors.

Your payroll software should be able to:

• Calculate gross pay, deductions, and net pay automatically

• Support PAYE and RTI submissions to HMRC

• Generate digital payslips and maintain payroll records securely
  

A clear payroll policy helps ensure employees understand how and when they’ll be paid, while giving HR and finance teams a consistent framework for managing payroll processes.

Your payroll policy should outline key information including:

• Pay schedules and payroll cut-off dates

• Overtime, bonus, and commission rules

• Statutory Sick Pay (SSP) procedures

• Statutory maternity, paternity, and parental pay

• National Minimum Wage and National Living Wage compliance

• How payroll queries and corrections are handled

Documenting these processes clearly can help reduce confusion, improve consistency and support compliance with UK payroll regulations.

Accurate employee data is essential for running payroll correctly and avoiding reporting issues with HMRC. Before processing payroll, employers need to collect and verify key employee information, including tax and payment details.

This typically includes:

• Full legal name and home address

• Date of birth and National Insurance number

• Tax code and P45 information

• HMRC starter checklist details for employees without a P45

• Bank account details and sort code

• Salary, working hours, and contract information

Using HR payroll software to centralise and update employee records can help reduce duplicate data entry, minimise payroll errors, and make payroll reporting more efficient.

Once employee payment details have been collected, employers can set up direct salary payments through BACS or another approved payment provider. In the UK, employees typically provide their bank account number and sort code, which is the UK equivalent of a routing number.

It’s important to allow enough time for payroll processing and bank transfers before payday. BACS payments usually take up to three working days to clear, so payroll teams should build this processing time into their payroll schedule to avoid delayed payments.

Before running payroll, make sure you have:

• Employee bank account numbers and sort codes

• Agreed payroll schedules and payment dates

• A payment process aligned with BACS processing timelines
  

Before processing payroll, employers should review employee timesheets and attendance records to make sure you’re tracking and recording all hours, absences and leave accurately. This is especially important for hourly workers, overtime payments, shift work, and employees with variable pay.

At this stage, payroll teams should check:

• Hours worked, overtime, and shift patterns

• Sick leave and other absences

• Holiday entitlement and holiday taken

• Bonuses, commission, or expense reimbursements

Using integrated HR and payroll software can help reduce manual checks by syncing approved time and attendance data directly into payroll workflows.

Before submitting payroll, it’s important to carry out a final review of employee pay and deduction data. This helps reduce payroll errors, avoid compliance issues, and ensure employees are paid correctly and on time.

Payroll teams should verify:

• Gross pay, net pay, and PAYE deductions

• Pension contributions and National Insurance payments

• Bonuses, commission, overtime, and other variable pay

• National Minimum Wage and National Living Wage compliance

• Employee tax codes and payroll records

A final payroll review can help identify discrepancies before payroll is submitted to HMRC and payslips are issued to employees.

Once payroll data has been verified, employers can submit payroll information to HMRC and issue employee payslips. In the UK, employers must send a Full Payment Submission (FPS) to HMRC on or before each payday as part of Real Time Information (RTI) reporting requirements.

An FPS includes details such as employee pay, PAYE deductions, National Insurance contribution and pension information. Missing or late submissions can lead to HMRC penalties, so it’s important to build reporting deadlines into your payroll process.

Employers are legally required to provide employees with itemised payslips showing:

• Gross pay

• PAYE deductions and National Insurance contributions

• Pension deductions and other adjustments

• Net pay

• Hours worked, where legally required

Payslips can be delivered digitally or as printed copies, provided employees can access and retain them easily.

After payroll has been processed, employers must collect and maintain accurate payroll records to meet HMRC and PAYE scheme requirements. Keeping payroll records up to date helps support compliance, simplifies year-end reporting and provides an audit trail if HMRC requests information.

UK employers are generally required to keep payroll records for at least three years from the end of the relevant tax year.

Payroll records should include:

1. Employee pay, deductions, and PAYE information

2. Tax codes, National Insurance contributions, and statutory payments

3. Payroll submissions sent to HMRC, including FPS and Employer Payment Summaries (EPS)

4. Employee leave, sickness, and statutory pay records

5. Expenses and benefits information reported through P11D forms

Employers may also need to submit an EPS to HMRC if they need to report adjustments, reclaim statutory payments, or confirm that no employees were paid during a tax period.

At the end of each tax year, employers must:

• Provide P60 forms to employees by 31 May

• Report taxable expenses and benefits through P11D forms where required

• Maintain PAYE records and payroll documentation for HMRC compliance

Using payroll software to centralise payroll records and automate reporting can help reduce admin and make year-end payroll processes easier to manage.

When deciding how to manage payroll, UK businesses typically choose between running payroll in-house or outsourcing it to a payroll provider. The right approach depends on your team size, internal expertise, compliance requirements, and how much control you want over payroll processes and employee data.

With in-house payroll processing, your HR or finance team manages payroll directly using payroll software and internal processes. Outsourced payroll processing involves working with a third-party payroll bureau or employer of record that handles payroll administration and HMRC reporting on your behalf.

For growing businesses, the decision often comes down to balancing efficiency, compliance confidence, and operational control. Some organisations prefer to keep payroll in-house as they scale, while others choose outsourced support to reduce administrative workload.

Personio supports both approaches by helping businesses centralise employee data, automate HR workflows, and integrate with payroll and accounting partners through a connected HR platform.

Even with the right payroll process in place, small issues can quickly turn into bigger problems when deadlines are tight or data is inconsistent. A few simple habits can help you reduce errors, stay compliant and make payroll easier to manage as your business grows.

• Schedule payroll tasks in advance: Set dedicated time aside for payroll preparation, approvals, and reporting so you’re not rushing at the last minute.

• Set clear expectations with employees: Make sure employees know when they’ll be paid and when payslips will be available to reduce unnecessary payroll queries.

• Keep employee records accurate and up to date: Regularly review payroll data across your HR and payroll systems to avoid inconsistencies, reporting issues, and payment errors.

• Use automation where possible: Automating repetitive payroll tasks such as calculations, reporting, and payslip generation can help reduce manual admin and minimise errors.

• Track payroll costs closely: Monitoring salaries, overtime, bonuses, pension contributions, and external payroll costs can help you budget more effectively and spot unexpected changes early.

• Stay up to date with payroll regulations: Keep track of changes to PAYE requirements, tax thresholds, statutory payments, and National Minimum Wage and National Living Wage rates.

• Stay current with HMRC deadlines: UK employers usually need to make PAYE payments to HMRC by the 19th of each month (or the 22nd if paying electronically). Missing payroll reporting or payment deadlines can lead to penalties and interest charges.

• Prepare for payroll year end early: Make sure you’re ready to issue P60 forms to employees by 31 May and submit any required P11D forms for expenses and benefits by 6 July.

As businesses grow, manual payroll processes can quickly become difficult to manage. Re-entering employee data, checking calculations manually, and keeping up with HMRC reporting deadlines all increase the risk of errors and delays — especially when payroll data sits across multiple systems.

Automated payroll processing helps reduce that administrative workload by using software to handle repetitive payroll tasks automatically. In practice, this can include scheduled payroll runs, automatic PAYE and National Insurance calculations, integrated time tracking, payslip generation, and Real Time Information (RTI) submissions to HMRC.

For HR and finance teams, automation can help solve common payroll challenges such as:

• Manual data entry across disconnected systems

• Payroll errors caused by outdated or inconsistent employee records

• Time spent calculating deductions and checking compliance requirements

• Delays in payroll approvals, reporting, and payslip distribution

When choosing payroll automation software, UK businesses should look for tools that support PAYE compliance, RTI submissions, secure employee record management, and integrations between HR, payroll, and time tracking systems.

Personio helps businesses streamline payroll workflows by centralising employee data, reducing manual admin, and integrating with payroll and accounting partners through a connected HR platform.

Personio’s Preliminary Payroll, available as part of Personio Core, helps your teams prepare accurate, connected payroll data for your external provider. By centralising employee records, time tracking, and payroll information in one place, you can reduce manual data entry and the risk of errors at each pay cycle.

Running payroll doesn’t need to mean chasing spreadsheets or correcting data discrepancies before every payroll run. With the right systems in place, you can keep payroll data consistent, simprove the handoff between your HR platform and your payroll provider, and maintain more reliable records across your business.

Personio integrates with payroll and accounting partners so that the data your provider needs – employee records, hours worked, absences, and pay changes — is accurate and ready when it needs to be.

Whether you run payroll weekly or monthly, Personio helps you spend less time managing payroll admin and more time focusing on your people.

Processing payroll involves calculating employee pay, managing deductions, reporting payroll information to HMRC, and paying employees accurately and on time. While every business will have slightly different payroll processes, most UK payroll workflows follow the same core steps:

• Set up payroll software

• Create a payroll policy

• Collect and verify employee data

• Set up employee payments

• Gather timesheets and attendance records

• Verify payroll data and deductions

• Submit payroll information to HMRC

• Issue payslips and maintain payroll records

Using payroll software can help businesses reduce manual admin, improve accuracyand support compliance with PAYE and RTI requirements.

Payroll calculations vary depending on employee contracts, pay structures, and statutory deducti

ons. However, most payroll calculations are based on a few standard formulas:

• Gross pay for hourly employees = Hours worked × hourly pay rate

• Gross pay for salaried employees = Annual salary ÷ number of pay periods

• Net pay = Gross pay − deductions and contributions

Deductions can include PAYE Income Tax, National Insurance contributions, pension payments, student loan repayments, and other voluntary deductions.

The payroll process can vary between businesses, but it typically involves collecting employee pay data, calculating earnings and deductions, submitting payroll information to HMRC, and paying employees on time.

In most UK businesses, payroll processing also includes managing PAYE deductions, generating payslips, maintaining payroll records, and meeting Real Time Information (RTI) reporting requirements.

A payroll processing checklist is a structured list of tasks that helps payroll teams complete payroll accurately and consistently during each pay cycle. It typically includes reviewing employee hours, checking deductions and statutory payments, verifying payroll data, submitting payroll information to HMRC, issuing payslips, and updating payroll records. 

UK employers must submit payroll information to HMRC through Real Time Information (RTI) reporting. This includes sending a Full Payment Submission (FPS) on or before each payday with details of employee pay, PAYE deductions, and National Insurance contributions.

With in-house payroll processing, the business manages payroll internally using its own HR, finance, or payroll teams. Outsourced payroll processing involves working with a third-party payroll provider that handles payroll administration and HMRC reporting on the business’s behalf.

Run smoother payroll for fewer headaches and happier employees

Personio’s payroll software connects with your other HR tools and payroll platforms for streamlined and connected payroll operations.

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