Monthly Payroll Checklist for UK Businesses

Running payroll in the UK means more than just paying your team on time. It’s about staying compliant with HMRC, protecting your employees’ rights and keeping your business out of trouble. A single missed deadline or incorrect calculation can cost you hundreds in pounds in penalties and damage the trust your team has in you.

The good news? A solid monthly payroll checklist takes the guesswork out of the process. It gives you a reliable system to follow every pay run, so you can focus on growing your business instead of worrying about compliance.

This guide walks you through everything you need to know, from your essential monthly tasks to choosing the right tools, avoiding common mistakes and maintaining the records that’ll protect you during an HMRC audit.

Monthly payroll checklist

Here’s your essential to-do list for every pay run. Follow these steps to make sure nothing slips through the cracks.

Verify employee information is up to date 

Check that all employee details are current in your system. This means bank account details, tax codes (HMRC sends updated codes throughout the year), National Insurance numbers, addresses and starter and leaver information. Wrong tax codes are one of the most common payroll errors. When HMRC issues a new code, you need to apply it straight away.

Collect timesheets and attendance data

Gather all hours worked, including regular hours, overtime, sick leave, holiday taken and unpaid leave. Keep these records for at least three years to support payroll compliance and minimum wage records. They’re essential for proving minimum wage compliance and resolving any disputes.

Before processing payroll

Process any payroll adjustments before you run the numbers. This includes salary increases or bonuses, pension opt-outs or changes, new benefits or deductions, student loan plan changes and changes to working patterns.

During payroll processing

Review and approve any changes

Calculate gross pay

Work out each employee’s total earnings before deductions. Start with basic salary or hourly wages, then add overtime pay, commission or bonuses, statutory payments like maternity, paternity, or sick pay and any benefits in kind.

Calculate and apply deductions

Deduct the correct amounts for Income Tax (PAYE) based on current tax codes and employee National Insurance contributions. Don’t forget that employer National Insurance contributions are now at 15% as of April 2025 on earnings above £5,000. Pension contributions follow the minimum 8% total, which is commonly split as 3% employer and 5% employee. You’ll also need to handle student loan repayments (check for new Plan 5 from April 2026) and any court orders or attachment of earnings.

Calculate statutory payments

Run payroll calculations

If applicable, process Statutory Sick Pay (check eligibility and current rates), Statutory Maternity Pay (90% of average earnings for 6 weeks, then £187.18 per week or 90% for 33 weeks, whichever is lower), Statutory Paternity Pay (£184.03 per week or 90% of average earnings for up to 2 weeks, whichever is lower) and Statutory Adoption Pay (same rates as SMP). You can reclaim 92% of these payments from HMRC or 103% if you qualify for Small Employers’ Relief (increasing to 109% from April 2026).

Use your payroll software to process all payments and deductions, generate payslips, calculate net pay for each employee and prepare BACS payment files or payment instructions.

Review payroll reports

Before you finalise anything, check that total wages match your budget, deductions look correct, there are no unusual variances from last month and all new starters and leavers are included. This is your last chance to catch errors before money moves.

After processing payroll

Pay your employees

Ensure payment reaches employees on or before payday. Submit BACS payments at least 3 working days before payday and allow extra time for bank holidays. Issue payslips to all employees, whether digital or paper.

Submit Full Payment Submission (FPS) to HMRC

This is legally required on or before payday. Your FPS must include employee pay, tax and National Insurance, starter and leaver information and student loan deductions. Late submissions trigger penalties from £100 to £400 per month, depending on your company size.

Pay HMRC

Transfer your PAYE  liability to ensure the payment reaches HMRC by the 22nd of the following month for electronic payments, or by the 19th if you’re paying by cheque. Late payments result in interest charges and penalties.

Submit Employer Payment Summary (EPS) if needed

File an EPS by the 19th of the following month if you need to reclaim statutory payments, claim Employment Allowance, report Construction Industry Scheme (CIS) deductions, or notify HMRC that no one was paid that month.

Update pension contributions

Submit pension contributions to your scheme provider and keep records of employee and employer contributions, assessment dates and opt-out notices (keep for 4 years). All other pension records should be kept for 6 years.

File and secure payroll records

Save all payroll documentation including payslips, RTI submissions, payment confirmations, timesheets and statutory payment calculations. HMRC requires you to keep payroll records for at least 3 years. Best practice? Keep everything for 6 years to protect yourself from legal claims and compliance checks.

Choosing the right payroll software

The right payroll software can turn a complex, error-prone process into something you can handle in minutes.

Modern payroll software should calculate tax, National Insurance and pension contributions automatically based on current HMRC rates. It should update rates when the tax year changes, apply new tax codes when HMRC issues them and flag errors before you submit. Employment Hero’s AI-powered payroll automates these calculations, reducing the manual work that typically causes errors and delays.

Your software needs to generate and submit FPS and EPS directly to HMRC. Look for systems that validate your data before submission to reduce the chance of rejections. 

But payroll doesn’t exist in isolation. Choose software that connects with HR management for starter and leaver data, time and attendance for accurate hours, leave management for holiday calculations and pension providers for auto-enrolment. When everything talks to each other, you eliminate duplicate data entry and reduce errors.

You need visibility into every calculation and payment. Good software provides detailed payroll reports by employee, department or cost center, along with year-to-date summaries and complete audit trails showing who made changes and when. Easy access to historical payslips and submissions is essential.

Payroll questions don’t wait for business hours. Look for providers that offer HR advisory services, managed payroll options if you need backup and responsive customer support.

Maintaining accurate payroll records

Good record-keeping isn’t just about compliance. It protects you from disputes, supports your decision-making and gives you peace of mind during an HMRC audit.

You must maintain comprehensive employee information including full name, address, date of birth, National Insurance number, start date (and leaving date if applicable) and employment contracts. On the financial side, keep records of gross pay for each pay period, all deductions (tax, NI, pensions, student loans), net pay, benefits in kind and statutory payments.

Your HMRC submissions need to be retained as well. This means all FPS and EPS submissions, P45s when employees leave, P60s issued by the 31st of May each year and tax code notifications. Supporting documents like timesheets and attendance records, pension assessment and contribution records and statutory payment calculations and eligibility checks round out your record-keeping requirements.

The legal minimum retention period is three years after the end of the tax year. However, best practice is to keep all payroll and HR records for six 6 years. Why? The Limitation Act 1980 allows employment claims to be brought within six 6 years. National minimum wage records and pension auto-enrolment records must be kept for 6 years. Keeping everything for the same period makes compliance simple.

Payroll data is personal information protected under GDPR. You need secure storage, whether that’s cloud-based systems with encryption or locked physical files. Restrict access to authorised staff only, maintain regular backups and establish a clear disposal process when the retention period expires. Cloud-based payroll systems handle this automatically, with enterprise-grade security and automatic backups included.

Using a payroll checklist template

Templates bring consistency to your process. They ensure every person running payroll follows the same steps, make it easier to train new team members and reduce the risk of missed tasks.

A standardised checklist means nothing gets forgotten. Each task is listed in order, with clear deadlines. Easy delegation becomes possible because anyone on your team can step in if needed. You’ll process payroll faster because you don’t waste time wondering what comes next. Better compliance follows naturally when regulatory tasks are built into the workflow.

Start with a standard monthly payroll checklist, then adapt it for your business. Add company-specific tasks like bonus calculations or commission structures. Include reminders for quarterly or annual tasks. Build in approval steps if multiple people are involved. Note which tasks are automated by your software. A good template evolves with your business. Review it every few months to make sure it still fits how you work.

Setting up your payroll system

If you’re setting up payroll for the first time, you need to build the right foundations.

Before your first pay run, register for PAYE by contacting HMRC. You’ll receive an Employer PAYE reference number and an Accounts Office reference number. You need both to submit RTI and pay HMRC.

Ask all employees to provide their full name and address, National Insurance number, date of birth, bank account details for payment and their P45 from previous employment (or complete a Starter Checklist if they don’t have one).

Choose your pay frequency (weekly, fortnightly, or monthly), set your payday and decide on your payment method (BACS or direct deposit).

If you have employees earning over £10,000 per year aged 22 to State Pension age, you must enrol them in a workplace pension scheme. Register with The Pensions Regulator and choose a pension provider.

Finally, select payroll software that’s HMRC-recognised, handles RTI submissions and integrates with your other business tools.

How to process payroll

Processing payroll follows a consistent pattern each month.

Start by gathering inputs. Collect timesheets, changes to employee data and any adjustments like bonuses, deductions, or statutory payments. Calculate gross pay by working out total earnings before deductions for each employee. Then calculate deductions by applying Income Tax, National Insurance, pension contributions and any other deductions. Calculate net pay by subtracting all deductions from gross pay to determine what employees actually receive.

Generate payslips showing gross pay, all deductions and net pay. Employees must receive these on or before payday. Submit your Full Payment Submission to HMRC on or before payday with all employee payment details.

Make payments to employees via BACS or direct deposit and submit pension contributions to your scheme provider. Submit an EPS if required and ensure your PAYE liabilities payment reaches HMRC by the 22nd of the following month and. Finally, file all documentation securely.

Managing pension contributions

Automatic enrolment is a legal requirement for UK employers. Employees must be automatically enrolled if they’re aged 22 to State Pension age, earn more than £10,000 per year and work in the UK.

The minimum total contribution is 8% of qualifying earnings (between £6,240 and £50,270), with employers contributing at least 3% and employees contributing at least 5%.

Your responsibilities include assessing all employees when they join and on each assessment date, automatically enrolling eligible employees within prescribed timeframes, calculating and deducting contributions correctly, paying contributions to the pension scheme on time, re-enrolling employees who opted out every 3 years and keeping records for 6 years. Pension errors trigger fines from The Pensions Regulator, not just HMRC. Get this right from day one.

Avoiding common payroll mistakes

Late RTI submissions are the most expensive mistake. Your FPS must be submitted on or before payday. Late submissions cost you £100-£400 per month in penalties. Set reminders and automate submissions where possible.

Wrong tax codes create problems for everyone. HMRC issues updated tax codes throughout the year and you need to apply them immediately when you receive them. Using outdated codes means employees pay too much or too little tax.

Incorrect National Insurance calculations happen when systems aren’t updated. NI thresholds and rates change annually. Make sure your software updates automatically, or you’ll underpay or overpay.

Miscalculated statutory payments damage trust. Get eligibility wrong or use outdated rates and you’ll underpay employees their legal entitlements. This can lead to tribunal claims and HMRC penalties.

Pension auto-enrolment errors are costly. Failing to enrol eligible employees or calculating contributions incorrectly results in fines from The Pensions Regulator and unhappy employees.

Missing HMRC payment deadlines triggers immediate consequences. Pay HMRC late and you’ll face interest charges and penalties. Set up direct debits or calendar reminders well before the 22nd of each month.

Poor record-keeping leaves you exposed. When HMRC audits your payroll, incomplete records make it impossible to prove compliance. Keep everything for at least 6 years, stored securely.

Misclassifying workers under IR35 rules can be expensive. Treating employees as contractors or vice versa can result in HMRC demanding back payments of PAYE and NI, plus penalties.

Ensuring payroll compliance

Staying compliant means understanding your legal obligations and building processes that deliver them every time.

For PAYE and National Insurance, you must deduct Income Tax and employee NI from wages, pay employer NI at 15% on earnings above £5,000 as of April 2025, submit RTI on or before payday and pay HMRC by the 22nd of the following month.

Statutory payments must be paid when eligible. This includes Statutory Sick Pay, Maternity Pay, Paternity Pay and Adoption Pay. You can reclaim most statutory payments from HMRC via your EPS.

Pension obligations require you to assess all employees for auto-enrolment eligibility, enrol eligible workers and contribute at least 3% and re-enrol leavers every 3 years. National Minimum Wage compliance means ensuring all employees receive at least the legal minimum for their age and keeping accurate records of hours worked. Record-keeping requirements mandate retaining all payroll records for at least 3 years, though 6 years is recommended.

Modern payroll systems automate most compliance tasks. They update tax codes, calculate deductions using current rates, submit RTI automatically and maintain digital audit trails. If you need extra support, HR advisory services can answer compliance questions and guide you through complex situations like end of financial year processing.

Updating employee information

Up-to-date employee data isn’t optional. It’s the foundation of accurate payroll.

Employee information changes more often than you think. Bank account details change when someone opens a new account or switches banks. HMRC issues tax codes throughout the year. Address changes affect tax and emergency contact information. Name changes happen through marriage or deed poll. National Insurance numbers need updating, especially for new starters. Pension opt-outs or changes require immediate attention.

Make it easy for employees to notify you of changes. Provide a clear form or self-service portal, set deadlines (like “notify us 5 days before payday”) and confirm receipt along with when the change will take effect. When employees can update their own information through an HR system, you reduce admin work and catch changes faster.

For sensitive data like bank accounts, require written confirmation or two-step verification. This protects you from fraud and ensures payments reach the right place.

The importance of accurate records

Good payroll records do more than satisfy HMRC. They give you insights into your business, support strategic decisions and protect you from risk.

When HMRC conducts an audit, complete records prove you’ve met your obligations. Missing or inaccurate records can result in estimated assessments, penalties and lengthy investigations. If an employee raises a question about their pay, historical records let you resolve it quickly. Payslips, timesheets and calculation breakdowns show exactly what was paid and why.

Payroll data reveals trends you can act on. Rising overtime costs might signal understaffing. Statutory payment patterns help you plan cover. Turnover rates show where retention efforts are needed. Accurate payroll records feed into budgeting, forecasting and cash flow management. They help you plan wage increases, model new hires and understand your true employment costs.

Take control of your payroll with Employment Hero

A monthly payroll checklist isn’t just about avoiding penalties. It’s about building a reliable system that protects your employees, your business and your peace of mind.

Start with the essentials. Follow your monthly checklist every pay run. Keep records for at least 6 years. Use payroll software that automates compliance. Stay current with HMRC rates and thresholds. Review your process regularly.

Need help getting your payroll right? Employment Hero’s payroll software handles UK compliance automatically, from RTI submissions to pension calculations. Built for small and medium businesses, it gives you time back and keeps you out of trouble.

Get payroll right and you free up time for what really matters: growing your business and supporting your team.