Handling end of employment payroll: guide to leaver processing, P45s and P46s

When an employee hands in their notice, there’s more to consider than a simple goodbye. Employers in the UK have a clear set of responsibilities to manage during the employee leaver process, from calculating final pay and updating payroll to issuing key documents. 

And getting it right is not only important for compliance reasons, but also for the employee experience. In this blog, we’ll talk you through everything you need to know about employee leaver processes and end of employment payroll. 

Let’s dive in.

What is the employee leaver process in the UK?

The employee leaver process in the UK is a formalised set of steps that begins when an employee hands in their resignation and concludes once payroll, compliance, legal and operational tasks are complete. In short, it’s the process you, as a business owner or HR professional, need to follow to ensure an employee’s exit is smooth and compliant. 

Although it is crucial for both legal and financial accuracy, it’s also important for maintaining a strong reputation as being a good employer and creating a thorough offboarding checklist and experience.

Key steps in the leaver process

The employee leaver process can feel pretty complicated. So to make sure you don’t miss any important steps, here’s an outline of the essential actions you need to remember. 

1. Final day confirmation

• Agree and document the employee’s official last working day (considering contractual or statutory notice periods).

2. Collect company property

• Retrieve all assets such as laptops, phones, security passes, uniforms or credit cards.
• Remove or transfer access to IT systems, email accounts and business tools.

3. Notify payroll team

• Inform payroll of the leaver’s final date to ensure correct calculations of salary, accrued holiday pay, deductions and any redundancy/notice pay.

4. Issue final payslip

• Provide the last payslip with a full breakdown of pay and deductions.
• Include any additional payments due (e.g. bonus, overtime, holiday pay).

5. Report to HMRC

• Submit the leaver’s details through Real Time Information (RTI).
• Generate and issue a P45 form to the employee for their tax records and new employer.

6. Provide leaver documents

• Supply required documentation such as the P45, final payslip and any contractual or statutory notices (e.g. redundancy letter).
• Optionally conduct an exit interview to gather feedback and ensure a positive offboarding experience.

End of employment payroll: What you must do

When someone leaves your business, there are always so many HR and payroll related tasks to tick off the list. And end of employment payroll is a bit daunting. For business leaders, HR professionals and payroll professionals, you need to ensure that final pay and reporting are not just accurate, but also timely. 

The main tasks include:

1. Calculating final pay
   • Salary: Pay all earnings up to the leaving date.
   • Holiday Pay: Compensate for accrued but unused statutory or contractual holiday.
   • Bonuses, Overtime, Commission: Include any payments owed under the employment contract.
   • Notice Pay: Pay in lieu of notice (PILON) if applicable.
   • Redundancy Pay: Process statutory or enhanced redundancy payments if due. It’s important to note that statutory redundancy pay is tax-free up to £30,000. Any excess or enhanced redundancy pay may be taxable and subject to NIC.
2. Tax and NI calculations
   • Apply PAYE deductions correctly up to the leaving date.
   • Deduct National Insurance contributions on all taxable earnings.
   • Adjust for benefits in kind, loans or salary sacrifice schemes.
   • Ensure final reporting of benefits through P11D/P11D(b) or payroll.
3. Statutory payments
   • Some statutory payments (e.g. Statutory Maternity Pay or SMP, Statutory Sick Pay or SSP) may need to be processed or continue after leaving. SMP continues after leaving if the entitlement began before termination, while SSP ends when the employment ends. 
   • Redundancy entitlements must be calculated in line with employment law.
4. Real Time Information (RTI) submissions
   • Ensure the employee is marked as a leaver so it is picked up correctly in the FPS. 
   • Provide the employee with a P45 detailing their earnings and tax up to the leaving date.
   • Maintain payroll records for a minimum of three years after the tax year.
     

What paperwork is needed when an employee leaves?

Paperwork is a necessary part of HR and end of employment payroll. To make sure you aren’t missing anything, here are the main pieces of paperwork you need to complete during an employee leaver process. 

What is a P45?

A P45 is an official HMRC form given to employees when they leave a job. It shows:

• Total pay earned in the tax year so far.
• Income tax paid via PAYE.
• The employee’s tax code.

This allows the new employer to apply the correct tax deductions.

So who issues a P45? The employer, via their payroll system, is responsible for generating and issuing a P45 to their departing team member. It should be processed immediately after the employee’s final payroll is run. But if you’re using a modern payroll software, it will generate it automatically alongside the final payslip. 

Failing to issue a P45 can cause a range of complications for the employee moving forward, such as: 

• The employee’s new employer may apply an emergency tax code, leading to overpayments of tax.
• HMRC compliance issues may arise for the employer.
• It can cause delays in accessing benefits such as Universal Credit.
  

The leaving date must be included in the final full payment  submission to HMRC, which triggers the P45. The P45 must then be given to the employee as soon as possible after they leave.

What is a P46?

Historically, a P46 was used if an employee started a new job without a P45, to inform HMRC of their tax code and employment details. But since 2013, the P46 has been replaced by RTI (Real Time Information) submissions. The new starter checklist now serves the same purpose. 

In the days of a P46, an employer would issue it to HMRC. Now, new employees complete a new starter checklist and submit details via their first RTI submission. Whilst with P46’s the time this took depending on HMRC’s processing time, the RTI information is transmitted instantly when payroll is run. 

The long and short of it for businesses managing and employee leaver process is that: 

• Today, the P45 remains essential for leavers.
• The P46 is obsolete, replaced by RTI and the starter checklist.

Reporting leavers to HMRC

Understanding what needs to happen internally is one thing, but what about reporting to HMRC? This is an important part of the offboarding process and employers need to make sure that all payroll leavers are reported correctly through RTI. Doing so protects your business from penalties and helps you remain compliant.  

RTI Process

RTI reporting requires employers to report on their employees pay, tax and National Insurance contributions on every payroll. Therefore, it’s important that the information provided is always up-to-date. 

When someone leaves your company, their final working date must be included in the FPS made via payroll. This tells HMRC the individual is no longer on the payroll, preventing further tax or NI liabilities from being accrued incorrectly.

How to complete leaver information via your payroll system

Modern payroll platforms make the employee leaver process than ever before. But if you’ve never done it before or need a refresh, here are the key steps: 

1. Enter the employee’s final working day in your payroll software.
2. Calculate and process final pay, including holiday pay, bonuses or notice pay.
3. Generate the P45 through the payroll system; this is automatically populated with pay and tax information to date.
4. Mark the employee as a leaver on the FPS and submit it to HMRC.
5. Provide the P45 to the employee promptly after payroll is finalised.
   

Common mistakes when processing leavers

Even with an employee leaver process in place, errors can occur. Unfortunately mistakes can lead to compliance issues, employee dissatisfaction and extra admin headaches. And we know those are the last things you want on your plate. 

But knowing common pitfalls can help to prevent you from falling into them. So here are some of the most common issues faced when processing end of employment payroll:

Not submitting leaver information to HMRC

Forgetting to include the leaving date on the final Full Payment Submission (FPS) means HMRC records remain open, potentially creating incorrect tax or NI  contributions or obligations.

Issuing incorrect P45 Details

Errors in pay, tax deductions or tax code on the P45 can delay the employee’s transition to a new job or benefits and may result in emergency tax at their next employer.

Missing final pay adjustments

Overlooking holiday entitlement, overtime, bonuses or redundancy pay can lead to underpayments, disputes or claims of unlawful deductions. It’s important to keep in mind that if payments are due after the final payrun has taken place, then a payment after leaving process will need to be done in line with HMRC guidelines and a new P45 will not be issued. 

Overlooking tax code updates
If tax codes are not updated correctly before issuing final documents, the employee’s tax record may be inaccurate, causing reconciliation issues with HMRC.

Careful checks at each stage, especially payroll calculations and HMRC reporting, help prevent these errors and protect both the employer and the employee.

Integrating payroll and offboarding for a smoother leaver process

When it comes to the employee leaver process, payroll and offboarding go hand in hand. This is why so many businesses are starting to see the benefits of employee offboarding integrated with payroll. By syncing HR and payroll functions, the leaver process becomes faster, more accurate and less prone to errors. 

But this isn’t the only benefit of syncing payroll and HR processes, you’ll be pleased to know, there are many more. Including: 

• Single source of truth: When HR systems feed leaver details (like resignation dates, reasons for leaving or accrued holiday) directly into payroll, there is less duplication of work.
• Compliance confidence: Automated syncing ensures that leaving dates, final payments and HMRC submissions are completed correctly and on time.
• Better employee experience: Employees receive accurate final pay and P45s promptly, reducing stress during a transition period.

Admin errors are the bane of every business owner and HR manager’s existence, but having all employment functions in one automated  platform reduces the risks and makes everyone’s lives easier. Automation can help to reduce errors by: 

• Eliminating manual data entry that can lead to payroll discrepancies.
• Auto-generating leaver forms (P45) and flagging outstanding holiday or bonus pay.
• Ensuring leaving dates are reflected consistently across HR, payroll and compliance records.

Getting the leaver process right with Employment Hero

Managing the leaver process correctly is more than just an administrative task, it’s a critical part of maintaining compliance, safeguarding company data and ensuring a positive employee experience. 

Although dealing with employee leaver processes is another job business leaders and HR managers need to tick off their to-do list, the good news is you don’t need to face it alone. Software, such as Employment Hero’s Employment Operating System can help you to avoid errors and stay compliant when running end of employment payroll. 

To find out how Employment Hero can help your business, talk to an employment specialist today.

End of employment payroll FAQs