Payroll in the United Kingdom: Employer costs, taxes & more in 2026

UK payroll runs through PAYE, with most employees paid monthly in pounds, and each pay run reported to HMRC in real time. Employment conditions and payments in the United Kingdom are governed by national regulations and statutory laws, with authorities like HM Revenue and Customs (HMRC) overseeing tax reporting and regulatory obligations.

Companies that hire from overseas often partner with Employer-of-Record (EOR) providers, like Payoneer Workforce Management, which help simplify payroll management. This article covers how to pay employees in the United Kingdom while meeting the legal obligations.

Paying a UK team? Payoneer Workforce Management runs PAYE payroll, files with HMRC, and manages pensions, so your people are paid accurately and on time. Talk to our team about UK payroll.

How does payroll work in the United Kingdom?

In the United Kingdom, salaries are usually paid once a month, often at the end of the month. If you run payroll under PAYE, you have specific tasks to complete every tax month, and a tax month runs from the 6th of one month to the 5th of the following month. Hourly workers may instead be paid weekly, fortnightly, or on 4-weekly cycles.

Minimum wage

Employees in different age groups are entitled to a statutory hourly rate. The National Living Wage is the rate for workers aged 21 and over, and the National Minimum Wage applies to workers under 21 and apprentices. The government-enforced rates change every April:

Time	Apprentice	Under 18	18-20	21 and over
April 2025	£7.55	£7.55	£10	£12.21
April 2026	£8	£8	£10.85	£12.71

What deductions and contributions apply to UK payroll?

Employee payroll in the United Kingdom includes statutory contributions and deductions that employers must calculate and report accurately to meet HMRC requirements.

The Pay As You Earn (PAYE) system

The Pay As You Earn (PAYE) system is used to collect Income Tax and National Insurance Contributions (NICs) from employees’ wages before they are paid. You make these deductions through your payroll system and send a Full Payment Submission (FPS) to HMRC on or before each payday, reporting the payments and the deductions made.

Income tax

Income tax in the United Kingdom is deducted from earnings through PAYE. The amount depends on how much an employee earns above the personal allowance and how much falls in each band. For England, Wales, and Northern Ireland, the bands are below; Scotland sets its own:

Band	Taxable income (GBP)	Tax rate
Personal allowance	0 to 12,570	0%
Basic rate	12,571 to 50,270	20%
Higher rate	50,271 to 125,140	40%
Additional rate	Over 125,140	45%

National Insurance Contributions

National Insurance is a statutory deduction within the UK payroll system. Employers pay 15% on earnings above the GBP 5,000 secondary threshold, and employees pay 8% between GBP 12,570 and GBP 50,270, then 2% above. Eligible employers can reduce the employer bill with the Employment Allowance, worth up to GBP 10,500 a year.

Other payroll deductions

Other deductions may apply where required by law or individual arrangements. For example, employers may be required to deduct benefit overpayments as part of DWP debt management, known as a Direct Earnings Attachment (DEA). If an employee has a student loan, repayments are also deducted through payroll based on their plan type.

What statutory pay and benefits apply in UK payroll?

Several statutory payments run through payroll, including sick pay, maternity pay, and redundancy pay, alongside paid leave.

Sick pay

Employees who cannot work due to illness are entitled to statutory sick pay of GBP 123.25 per week, for up to 28 weeks. SSP is payable from the first qualifying day of sickness following recent reforms.

Maternity pay

Employees receive statutory maternity pay (SMP) for up to 39 weeks. For the first 6 weeks they receive 90% of average weekly earnings, and for the next 33 weeks they receive GBP 194.32 or 90% of average weekly earnings, whichever is lower. SMP is paid like wages and is taxable.

Overtime pay

No law in the United Kingdom mandates statutory overtime pay, but no employer can pay less than the minimum wage. Any overtime multipliers are contractual rather than statutory.

Redundancy pay

When you make an employee redundant, statutory redundancy pay is 0.5 week’s pay per year for those under 22, 1 week’s pay for ages 22 to 40, and 1.5 weeks’ pay for 41 and over, with the weekly pay capped at GBP 751.

Paid leave

Employees who work 5 days a week are entitled to at least 28 days, or 5.6 weeks, of paid annual leave each year. Mothers get 26 to 52 weeks of maternity leave, and fathers are entitled to 1 or 2 weeks of leave.

What happens if you run UK payroll without an EOR?

Getting UK payroll wrong exposes you to three main risks: late or incorrect RTI reporting, under-deducting tax or National Insurance, and missing auto-enrollment duties. Each can bring penalties, interest, and back payments. A well-run payroll setup, or an EOR, helps reduce most of this exposure.

Risk	What it can mean	How to reduce it
Late or wrong FPS filing	HMRC late-filing and late-payment penalties	File on or before payday, or use a payroll provider
Under-deducting tax or NI	Back tax, interest, and penalties from HMRC	Apply correct tax codes and current rates
Missing auto-enrollment	Fines from The Pensions Regulator	Enroll eligible staff and pay on time

What does payroll cost an employer in the United Kingdom?

On top of gross salary, budget for employer National Insurance and the employer pension contribution. The example shows an employee on GBP 50,000, with the employer cost and the employee’s take-home pay.

Line item	Amount (GBP/year)
Gross salary	50,000
Employer NI (15% above 5,000)	6,750
Employer pension (3% of qualifying earnings)	1,313
Total employer cost	58,063
Employee income tax	7,486
Employee NI (8%)	2,994
Employee pension (5%)	2,188
Net take-home pay	37,332

Figures are illustrative and depend on the tax code, pension scheme, and Employment Allowance. For a live breakdown by salary, use the Employee Cost Calculator.

How do you meet UK payroll requirements?

Meeting UK payroll requirements means deducting the right amounts, reporting to HMRC on time, and keeping pace with annual changes. Some best practices to follow:

1. Submit full payment submissions on or before every payday, reporting employee pay and deductions.
2. Apply all tax codes and calculate National Insurance, PAYE, and other deductions precisely.
3. Enroll eligible employees into a workplace pension so they meet the minimum contribution thresholds.
4. Make sure all employees are paid at least the minimum wage.
5. Safeguard employee payroll data in line with UK data privacy regulations.
6. Use compliant payroll software that can automate calculations and statutory reporting.

At the tax year end on 5 April, you also run a year-end process and give each employee a P60, and you issue a P45 when someone leaves. Payroll records should be kept for at least three years.

You can also explore the Employer of Record, hiring, employment laws, and leave policy guides for the United Kingdom, or browse more global payroll guides.

What are your options for payroll services in the United Kingdom?

Entities looking to streamline UK payroll can choose from three methods:

• Set up a local entity: register your company in the United Kingdom and with HMRC, then pay employees directly after deducting PAYE and other deductions
• Partner with an Employer of Record: a third-party organization acts as the legal employer and pays employees in the United Kingdom on your behalf while complying with applicable laws
• Hire independent contractors: self-employed contractors manage their own National Insurance and tax, which reduces your payroll obligations, but you must follow employment-status and IR35 rules to avoid misclassification penalties

For organizations looking to streamline payment in the United Kingdom, Payoneer Workforce Management lets you legally employ teams without setting up a local entity, and supports compliance with wages, deductions, and payroll cycles.

EOR services start at $249 per employee per month, with final pricing depending on headcount and contract structure.  

Pay your UK team with Payoneer Workforce Management. Book a demo today.

Frequently asked questions (FAQs)

About the author

Martyna Krawczyk

HR and Immigration Lawyer, Global HR Operations 

Martyna Krawczyk is an HR and Immigration Lawyer and Associate within the Global HR Operations team at Payoneer Workforce Management (formerly Skuad). She holds an LPC LL.M. from the University of Law in the UK and an Associate CIPD certification. Martyna also serves as Vice President of the Labour Law Association of Poland and was recognized at the Wolters Legal Hackathon 2024. Her areas of focus include international employment law, cross-border workforce compliance, and global immigration, supporting organizations in managing international workforces.