Receiving two payslips in a short period doesn’t necessarily mean something has gone wrong.
There are perfectly legitimate reasons why an employee might receive two payments that fall within the same PAYE month.
A business might be changing its normal payday. There may be a transitional or part-period payment. An additional payment may need to be processed.
But while making another payment might sound straightforward, payroll needs to look at the bigger picture.
First: what is a PAYE month?
PAYE months don’t follow ordinary calendar months.
The tax year begins on 6 April, so each PAYE month generally runs from the 6th of one month to the 5th of the next.
That means two payments made on different calendar dates could still fall within the same PAYE month.
For example, a payment made on 10 October and another made on 2 November both fall within PAYE month 7.
And that’s where things can become more interesting.
The second payment isn’t necessarily a fresh start
When another payment is made in the same PAYE period, payroll needs to know what has already happened.
Depending on the circumstances, that can affect how the later payment is processed.
This is particularly important where a business is changing its normal payday and needs a transitional payroll to move employees from one pay cycle to another.
It isn’t simply a case of calculating the second gross payment and pressing a button.
The payroll needs to be considered as a whole.
What about tax?
PAYE tax is normally calculated using the employee’s tax code and their taxable pay to date, subject to the type of tax code being operated.
Where there is more than one payment, the previous pay and tax position therefore matters.
The payroll system needs the correct information so that the appropriate tax calculation can be made.
National Insurance works differently
This is an important distinction.
PAYE tax and National Insurance don’t operate in exactly the same way.
National Insurance contributions are generally calculated by reference to the employee’s earnings period and the relevant payment.
Where multiple payments are made within an earnings period, the circumstances of those payments matter.
This is one of the reasons additional or transitional payments shouldn’t simply be processed without first considering how they interact with the normal payroll.
Don’t forget pensions
If the employee is a member of a workplace pension scheme, another payment can also have pension implications.
The payroll provider may need to consider pensionable earnings, employee and employer contributions and how the pension scheme expects the payment to be reported.
Again, the answer will depend on the circumstances and the pension arrangement being operated.
And HMRC still needs to know
Payments made to employees generally need to be reported through Real Time Information using a Full Payment Submission (FPS).
Where there are two genuine payments, payroll needs to make sure that both are reported correctly and that the payment dates and figures reflect what actually happened.
The fact that an employee has already appeared on an FPS that PAYE month doesn’t mean another genuine payment can simply be ignored.
This often crops up when changing payday
One of the situations where we see this become particularly relevant is when an employer changes its payroll cycle.
Imagine employees have historically been paid part-way through the month and the employer wants to move to a month-end arrangement.
There may need to be a transitional payment to bridge the old and new pay periods.
Before making that change, we would want to understand:
- what period the existing payment covers;
- what period the new payment will cover;
- whether a transitional payment is required;
- which PAYE periods the payments fall into;
- how tax and National Insurance will be handled;
- whether pensions are affected; and
- how and when the change will be communicated to employees.
Only then should we start changing payroll dates.
Payroll software helps. Payroll knowledge matters.
Modern payroll software is very good at calculations.
But software still needs to be set up correctly and given the right information.
That’s why we’re cautious when somebody says:
“Can we just run another payroll?”
Usually, we can.
But first we’re going to ask why, what the payment relates to, when it is being made and what has already happened in that PAYE period.
Because sometimes the important part of the second payslip…
is the first one.
At Love Payroll, we believe payroll isn’t simply about producing a payslip. It’s about understanding what’s behind it and making sure people are paid correctly.
Every Person. Every Payslip. Every Time.
