Whether you’re a contractor or temporary worker, getting to grips with the keywords and phrases associated with payroll is a must. It’s not just you – payroll terminology can leave the most experienced professionals confused. Whilst employees need to have enough knowledge to understand their payslips, contractors fulfilling their own tax and National Insurance (NI) obligations need a more in-depth awareness to get by, particularly if they have their own staff to pay.
As leading providers of professional payroll solutions, we aim to take the hassle and risk out of payroll processing with a number of outsourced services. In this blog post, our experts share the terms and acronyms commonly used by payroll professionals like us so you can gain a better understanding of the way the world of wages works.
Let’s start with the basics. PAYE OR Pay As You Earn is a payroll term commonly used, yet many professionals don’t know the finer details of this particular scheme. Citizens Advice offers a succinct definition for this frequently used system:
“The Pay As You Earn (PAYE) system is a method of paying income tax and national insurance contributions. Your employer deducts tax and national insurance contributions from your wages or occupational pension before paying you your wages or pension. Wages includes sick pay, maternity or paternity pay and adoption pay. You pay tax over the whole year, each time you are paid, rather than paying tax in one lump sum. Your employer is responsible for sending the tax on to HM Revenue and Customs (HMRC). Each pay day you will get a pay slip setting out your pay, tax and national insurance contributions and any other deductions from your pay.”
Gross and net pay
Understanding the difference between gross pay and net pay can be tricky at first glance, with many getting one confused with the other. In short, gross pay is the amount of pay you receive before your tax, National Insurance and other deductions are taken. Despite gross pay not taking these deductions into consideration, this total does include salary, overtime, holiday, sick, bonus and commission payments.
Net pay is the amount of pay a professional or employee actually takes home after tax, NI and other deductions have been made.
SMP and other maternity/paternity pay
Most employees and contractors are entitled to some form of maternity or paternity pay, but the abbreviations associated with these payments can leave the recipient or applicant a little perplexed. Statutory maternity pay (SMP), statutory paternity pay (SPP), additional statutory paternity pay (ASPP) and statutory adoption pay (SAP) are all types of pay available to those who have recently given birth to or adopted a child. There are also other types of paternity payments available to eligible adoptive parents.
Those eligible for SMP or SAP are entitled to a maximum of 39 weeks’ paid leave. SPP and SPP for adoption can have a maximum of 2 weeks of paid leave. Additional statutory paternity pay and additional statutory paternity pay for adoption are entitled to up to 19 weeks’ paid leave depending on whether they meet the necessary criteria.
Statutory sick pay (SSP)
As with statutory maternity and paternity payments, eligible employees and contractors who are absent from work due to sickness may be entitled to some form of financial support. Unlike statutory maternity and paternity however, SSP is paid to employees and other eligible professionals by employers. SSP is available to eligible employees for up to 28 weeks. Tax and National Insurance is also deducted from statutory sick pay as it would be from your salary.
There are many more payroll terms and acronyms. If you need assistance clarifying any of this terminology, please contact our friendly and helpful payroll professionals.