Payroll Glossary: Essential Terms and Definitions – As of Jan 2026

Please check https://www.gov.uk/ for latest information including dates, figures and time periods.

Note – this is written in the style of a Junior consultant, but can be changed to normal tone if it doesn’t get it right

When I joined Portfolio Payroll as a junior recruitment consultant, the terminology felt overwhelming – even for someone well versed in the industry. Gross pay, PAYE, P45s, P60s – I’d find myself nodding along in meetings while frantically noting down terms to look up later. And what surprised me wasn’t just the volume of terminology, but how essential understanding it became to doing my job well.

Portfolio Payroll has been operating since 1988, making us the longest-established specialist recruiter in payroll. That longevity comes from genuine specialisation, and our consultants develop deep knowledge of the roles they’re filling, right down to the technical details.

So whether you’re new to payroll, hiring your first payroll professional, or looking to refresh your understanding of key terms, this glossary covers the essentials.

The Basics

Gross Pay

The total amount an employee earns before any deductions are taken. This includes base salary, overtime, bonuses, commission, and any other forms of compensation. Calculating gross pay accurately is essential, particularly for roles involving variable pay structures.

Net Pay

The amount an employee actually receives after all deductions have been made from their gross pay. This is what lands in their bank account on payday – often called take-home pay.

PAYE (Pay As You Earn)

The UK system for collecting Income Tax and National Insurance contributions directly from employees’ wages. Employers calculate and deduct these amounts before paying staff, then remit them to HMRC. It’s the backbone of UK payroll compliance.

National Insurance Contributions (NICs)

Mandatory contributions made by both employers and employees that fund state benefits, including the State Pension, NHS, and unemployment support. NICs are calculated based on earnings thresholds and contribution categories.

Tax Code

A combination of numbers and letters issued by HMRC that indicates how much tax should be deducted from an employee’s pay. Tax codes reflect personal allowances, benefits, and other factors affecting an individual’s tax liability.

Essential Documents

P45

A document given to employees when they leave a job, showing their tax code and total earnings and tax paid during that employment. The new employer uses this information to set up the correct tax deductions going forward.

P60

An annual summary of an employee’s total pay and deductions for the tax year, issued by the employer after the tax year ends (5th April). Employees need this for tax returns and various financial applications.

P11D

A form used to report benefits and expenses provided to employees, such as company cars, private medical insurance, or interest-free loans. These benefits are typically subject to tax and National Insurance.

Payslip

A document provided to employees each pay period showing the breakdown of their gross pay, all deductions, and their net pay. Payslips must include specific information as required by UK employment law.

Statutory Payments and Leave

Statutory Sick Pay (SSP)

The minimum amount employers must pay to eligible employees who are off sick for four or more consecutive days. SSP has specific qualifying criteria, rates, and a maximum payment period of 28 weeks.

Statutory Maternity Pay (SMP)

Payment made to eligible employees during maternity leave, typically for up to 39 weeks. The rate varies between an earnings-related amount for the first six weeks and a flat rate thereafter. Similar statutory payments exist for paternity and shared parental leave.

Paternity Pay

Paternity pay is statutory pay available to eligible employees in the UK who take time off work following the birth or adoption of a child. Eligible employees can take up to two weeks of Statutory Paternity Leave, paid at either £184.03 per week (2025–26 rate) or 90% of their average weekly earnings, whichever is lower. To qualify, the employee must have at least 26 weeks’ continuous service by the 15th week before the baby is due and earn above the Lower Earnings Limit.

Neo-Natal Pay

Statutory Neonatal Care Pay is a UK entitlement introduced in April 2025 for parents whose baby requires neonatal care shortly after birth. Eligible employees can take up to 12 weeks of Neonatal Care Leave, paid at £184.03 per week (2025–26 rate) or 90% of average weekly earnings, whichever is lower. This entitlement applies when a baby is admitted to neonatal care within 28 days of birth and remains in care for at least 7 consecutive days. Neonatal care leave and pay are additional to maternity, paternity, and shared parental entitlements, allowing parents to take time off once their child comes home without losing other statutory leave.

Holiday Pay

Payment for periods when employees take their statutory annual leave entitlement. The calculation can be complex for those with irregular hours or variable pay, and must comply with Working Time Regulations.

Payroll Operations

Pay Period

The frequency with which employees are paid – most commonly weekly, fortnightly, or monthly in the UK. The pay period affects cashflow management, administrative workload, and how certain statutory calculations are processed.

Payroll Cut-off

The deadline by which all changes (new starters, leavers, pay adjustments, absence) must be submitted to ensure they’re included in the next pay run. Missing this deadline typically means changes are delayed until the following period.

Real Time Information (RTI)

Introduced in 2013, RTI requires employers to report payroll information to HMRC on or before each payday. This replaced the previous system of annual reporting and fundamentally changed UK payroll processing.

Auto-Enrolment

The legal requirement for employers to automatically enrol eligible workers into a workplace pension scheme and make employer contributions. This includes managing opt-outs, re-enrolment, and ongoing contribution requirements.

Full Payment Submission (FPS)

The RTI report submitted to HMRC on or before each payday, containing details of payments made to employees and deductions taken. This must be submitted every time you pay employees.

Employer Payment Summary (EPS)

An RTI report sent to HMRC to claim back statutory payments, report no payments being made for a period, or explain why the amount paid doesn’t match what was expected based on previous FPS submissions.

Software and Systems

Payroll Software

Systems used to process payroll, calculate deductions, generate payslips, and submit RTI returns to HMRC. Common UK payroll software includes Sage, Workday, ADP, and iTrent, each with different features and capabilities.

HMRC Gateway

The online portal through which employers submit payroll information to HMRC electronically. Access requires authentication credentials, and all RTI submissions go through this system.

Compliance and Legislation

National Minimum Wage (NMW) / National Living Wage (NLW)

The legal minimum hourly rates employers must pay workers, which vary by age and apprentice status. Non-compliance can result in financial penalties, public naming, and back-payment requirements.

IR35

Tax legislation designed to prevent tax avoidance by workers supplying services through an intermediary (typically a personal service company) who would otherwise be classed as employees. Determining IR35 status correctly is essential for proper tax treatment.

Making Tax Digital (MTD)

HMRC’s programme to digitise the tax system, requiring businesses to keep digital records and submit returns using compatible software. While currently focused on VAT and Self Assessment, it represents the direction of UK tax administration.

Why This Matters for Recruitment

Understanding these terms goes beyond simple definitions. When a client requests someone with “strong year-end experience,” they’re looking for expertise in P60s, P11Ds, and annual reconciliations. When they specify “RTI compliance knowledge,” they mean specific technical capabilities around digital reporting and HMRC submissions.

This depth of understanding is what differentiates specialist recruiters from generalist agencies. Rather than matching keywords on CVs to job descriptions, specialist consultants can have informed conversations about payroll challenges because they understand the technical landscape themselves.

Portfolio Payroll has been operating for four decades, making it the longest-established specialist recruiter in payroll. The company holds the position of #1 rated recruitment agency on Trustpilot based on over 3000 reviews with five stars. This reputation stems from genuine specialist knowledge – consultants who understand how terminology translates into the real skills and experience clients need when hiring payroll professionals with the right expertise.

Work With Specialist Payroll Recruiters

Portfolio Payroll offers specialist recruitment services for Payroll Administrators, Payroll Managers, and Payroll Directors, backed by over 35 years of industry expertise. The consultancy provides salary benchmarking, market insights, and comprehensive support throughout the hiring process, taking a consultative approach that prioritises understanding client requirements.

For specialist hiring support for payroll teams, contact Portfolio Payroll’s expert recruiters for payroll professionals.