As outsourced payroll specialists, we provide a full payroll service to our clients, who are mainly small businesses who do not have a separate function to handle payroll. This article details what areas need to be looked at when it comes to calculating the final pay that an employee is entitled to when they leave.
Firstly, Their Basic Pay
How much will the departing employee be due for the pay period in question? For example, if the employee is a monthly paid worker, but has left halfway through the month, then the pay they are due will need to be calculated on that basis.
Are There any Absences?
If the leaving employee had any absences during the current or previous pay period then they will need to be checked and deducted from their final pay. Furthermore, if they refuse to work their notice period or if there is any unexplained absence you are not required to pay them for these items.
What about Holiday Pay?
If they are owed any holiday, then holiday pay needs to be calculated based on the number of days the departing employee worked each week and the number of weeks they worked during the holiday year. Bank holidays need to be included in the calculation.
If they have they taken too much holiday for the proportion of the holiday year they have worked, you can deduct it from their final pay.
It is worth noting that calculating the amount of holiday pay that is due can be very complex if an employee works variable hours and days each week.
Are There Any Other Deductions to Consider?
The answer is yes. One example is temporary loans. If you have made the departing employee a temporary loan which has not been repaid or for equipment that has been damaged or not returned, then these are legitimate deductions, providing they are set out in the contract of employment. Such deductions are likely to be from net pay and and will not affect tax and NI.
If a weekly paid employee is paid at the end of the second week they start work, then you must pay them the additional week of pay which is due to them with their final pay.
A departing employee must be sent a P45 once their final pay has been calculated. Final pay will usually be calculated at the same time as the normal weekly or monthly salary and leavers cannot expect to receive their pay earlier than normal. HMRC rules are that pay information is submitted to them on the same day or before an employee receives their pay.
As always, it is important to get the calculations correct before submitting the final pay information to HMRC as it can be a lengthy process to put things right after the event.
Contact us to Discuss Your Payroll Requirements.
Payroll can be complicated. There are always many things to be aware of, as this article about what happens when employees leave shows. Plus, of course, HMRC, makes many changes in each year.
If you run a small business and need the support of an outsourced payroll specialist, please contact us or call us on 0121 422 0550 for an initial chat to find out how we can help.