Running payroll accurately, on time, and in line with the rules is one of those essential rhythms of business. Done well, payroll management keeps people paid correctly, protects cashflow, and prevents HMRC headaches. Done badly, it undermines trust and produces avoidable costs. With real-time reporting obligations, frequently updated rates, and growing expectations around flexible benefits, it pays to have a reliable process that you can explain, audit, and improve.
From April 2025, several updates affect how you operate payroll. The main employee National Insurance rate is 8% for standard category A between the primary threshold and upper earnings limit, and the employer rate is 15% above the secondary threshold (HMRC, 2025). National Minimum Wage rates also rose on 1 April 2025, with the National Living Wage (21 and over) now £12.21 per hour. Those figures matter, not just for compliance, but also for workforce planning and budgeting. At the same time, absence and wellbeing trends continue to shape payroll inputs, with 148.9 million working days lost in 2024 and a sickness absence rate of 2.0% – an average of 4.4 days per worker (ONS, 2025). In this article, we set out the practical steps to strengthen payroll management, keep your records straight, and support a motivated, fairly paid team.
Get the basics right: Core payroll management controls
Solid payroll management starts with dependable building blocks you repeat every pay period.
- Right people, right data: Maintain up-to-date starter and leaver details, tax codes, student loan status, pension enrolment, and valid postcodes. Clean master data reduces rework and protects employees from under- or over-deductions.
- Cut-off discipline: Agree clear deadlines with line managers for overtime, bonuses, and variable pay. Late inputs are a common source of error and frustration.
- Four-eyes checks: Separate preparation and approval for payroll runs. Use exception reports to focus on changes above defined thresholds before you press “finalise”.
- Secure records: Store payslips, RTI confirmations, and payroll journals in an auditable, access-controlled system. Good documentation speeds HMRC queries and year-end tasks.
Real-time reporting: What, when and how
Under RTI, you must send a Full Payment Submission (FPS) on or before payday, reporting pay, tax, National Insurance and any payrolled benefits. If you need to reclaim statutory payments or tell HMRC you paid no employees in the month, you submit an Employer Payment Summary (EPS) by the 19th of the following tax month (HMRC, 2025). Late or missing reports can trigger penalties, although HMRC operates a limited three-day easement and a first-failure concession (HMRC, 2019).
To reduce risk:
- Real-time reporting (RTI): File on or before payday (FPS), and use an EPS: By the 19th to report adjustments or no pay in a tax month.
- Late filing penalties: Understand the scale – monthly penalties range from £100 for 1–9 employees to £400 for 250+ employees.
- Automated evidence: Keep submission receipts from your software and reconcile them to your PAYE account monthly.
Rates and thresholds: Bake updates into your process
Keeping on top of rates is a non-negotiable part of payroll management. For 2025/26:
- Employee NIC (Category A): 8% between the primary threshold and upper earnings limit, then 2% above the limit. Employer NIC: 15% above the secondary threshold.
- National Minimum Wage: Check Eligibility – from April 2025, the National Living Wage is £12.21 for ages 21 and over, with other bands at £10.00 (18–20) and £7.55 (under 18 and apprentices).
- Family-related and sick pay: Use The Latest Rates – SMP, SPP, SAP, ShPP, SNCP weekly cap is £187.18 or 90% of average weekly earnings if lower; use HMRC’s calculators to avoid mistakes.
Make rate reviews part of your year-end checklist and test changes in software before the first April payroll.
Managing absence and variable pay: accuracy and fairness
Absence flows straight into payroll through Statutory Sick Pay, salary adjustments, and holiday pay. With the sickness absence rate at 2.0% in 2024 and 148.9 million days lost (ONS, 2025), even small improvements in absence data accuracy can have material cost and morale benefits.
- SSP eligibility: Confirm qualifying days and earnings before paying, and keep fit notes where required.
- Holiday pay: Follow current rules for regular overtime and commission, ensuring you use the correct reference period.
- Overtime approvals: Standardise the format – date worked, hours, rate, authoriser – and set a cut-off aligned to your payroll timetable.
Benefits, salary sacrifice and pensions: Build value, avoid errors
Employees increasingly expect flexible benefits delivered cleanly through payroll.
- Salary sacrifice: Document the agreement and confirm it does not reduce pay below the National Minimum Wage. Recalculate NIC correctly to reflect the reduced contractual pay.
- Pension auto-enrolment: Monitor assessments for postponements, opt-ins and re-enrolment. Keep contribution files matching payroll reports to the penny.
- Benefits in kind: Decide payrolled vs. P11D and align payroll codes so taxable benefits are treated consistently across the year.
If you’re exploring salary sacrifice or benefit design, we cover the basics and pitfalls here: Understanding salary sacrifice.
Practical ways to streamline your payroll management
Small process wins compound quickly:
- Standard templates: Use one source of truth for variable pay, with mandatory fields and built-in checks.
- Calendars and alerts: Schedule key tasks – payroll cut-offs, submission deadlines, pension uploads, and payment dates.
- Monthly reconciliations: Tie up the numbers – compare payroll reports to nominal ledgers, PAYE liabilities, and pension contributions.
- Self-service: Reduce admin – give employees secure access to payslips and P60s, and route address and bank changes through the portal.
- Cross-checks: Run reasonableness reports – headcount vs HR, gross pay trends, big movement flags, and holiday accruals.
For a quick sense check of take-home impacts, try our payslip calculator and, if you want broader support, see what we do.
Common pitfalls we help clients avoid
- RTI timing: Missing the FPS because of late inputs or sign-off delays. Solution: lock cut-offs and escalate exceptions.
- NMW breaches: Overlooking salary sacrifice and uniform deductions when checking compliance. Solution: run automated NMW checks after any changes.
- Duplicate records: Reusing payroll IDs for re-hires. Solution: apply the correct “payroll ID changed” process and keep audit trails (HMRC, 2025).
- Pension variances: Mismatched files between payroll and the pension platform. Solution: reconcile each cycle and investigate differences before submitting.
Make payroll a strategic asset
Good payroll management is more than paying people. It is a predictable, well-documented process that supports retention, trust, and decision-making. The 2025/26 year brings higher statutory pay caps, a higher National Living Wage, and the now-established 8% employee NIC rate with a 15% employer rate – changes that should already be reflected in your budgeting and software settings (HMRC, 2025). Against that backdrop, reliable RTI submissions protect you from penalties, while clean master data and reconciliations protect your team from errors and your business from cash surprises. The wider workforce picture matters too: with sickness absence at 2.0% and 148.9 million days lost in 2024, aligning absence processes with payroll helps ensure people are paid correctly and managers see the full cost picture.
If you’d like a short audit of your payroll set-up – checking RTI timing, NMW risk, pension controls, and reporting – we can help you strengthen the process and reduce admin. Talk to us about payroll management that keeps people happy and your records straight. Get in touch and we’ll start with what’s working, then fix the rest together.