Processing Payments to Leavers

When an employee receives payment after leaving, there are implications for the tax and NI calculations.

National Insurance Calculation

When an employee receives payment after leaving, there are implications for the NI calculation:

  • Payment type affects the NI frequency applied. If the payment is:

    • Regular then NI is based on the employee's normal earnings period, contributions rates and limits current at the time of payment, and the usual contribution table letter.

    • Irregular then NI is based on a weekly frequency.

      Examples of irregular payments are unexpected bonuses, and arrears of pay following a backdated pay award.

  • Payments after six weeks of last payment date are paid at the non-contracted out rate.

    Global Payroll for the UK automatically calculates NI at a contracted out rate for payments made to leavers made more than six weeks after their last payment date, if the P45 has been printed for the leaver. The formula NI FM CAT LEAVER overrides the NI category for payments more than six weeks after last payment date.

When a payment is made to an employee after the termination has been processed, Global Payroll for the UK uses the value of the accumulator GBR AC IRREG SEG to determine whether the payment is irregular. This accumulator tracks all earning elements that constitute irregular payments.

If the value of GBR AC IRREG SEG is equal to the value of the accumulator GBR AC NIBL SEG the weekly NI basis is automatically applied for NI calculation purposes. If GBR AC IRREG SEG and GBR AC NIBL SEG are not the same, then the payment comprises regular payments only, or a combination of regular and irregular payments. In this case, the system calculates NI using the employees pay frequency basis.

Alternatively, you can override the NI frequency on the Maintain NI Data GBR page to force a change of the NI basis. Special consideration needs to be given to irregular earnings for backdated pay awards. If the payment is made using the same earning element as normal salary, it is not identified as irregular and you must manually override the NI frequency.

Refer to HM Revenue and Customs (HMRC) documentation for further information on regular and irregular earnings.

Tax Calculation

When an employee receives a payment after leaving, there are implications for the tax calculation if termination processing is completed (that is, a final P45 has been printed). If a leaver has been processed, Global Payroll for the UK calculates tax using the following:

  • Tax Code is BR.

  • Tax basis is Week 1/Month 1.

The formula TAX FM TXCD LEAVER changes the tax code and tax basis if the employee is terminated and the final P45 has been issued.