Paying an employee after giving them a P45 (PAL)
Sometimes, payments need to be made to employees after they have officially left your organisation and their final payslip has been processed. This guide details how to handle Payment After Leaving (PAL) in FreePayroll, ensuring compliance with HMRC regulations.
Payment After Leaving refers to any payments made after an employee's departure date, which could include unpaid wages, accrued holiday pay, or bonuses. It's crucial to handle these payments correctly to ensure accurate reporting to HMRC.
Use PAL for any post-termination payments, except for tax-exempt payments like certain redundancy payments over £30,000, which have their own rules. Always use tax code 0T on a Week 1/Month 1 basis, ensuring National Insurance and any student loan repayments are deducted correctly.
If you have to pay an employee after they leave :
- Go to the employee profile
- Update employee tax code 0T on a ‘week 1’ or ‘month 1’ basis (use the code S0T if they’re taxed at the Scottish rate or C0T if they’re taxed at the Welsh rate).
- After updating the employee tax code, now click on the three dots, next to the employee name, and select "Payment After Leaving".
- Select the payment type:
Regular payment (For example, contractual pay such as salary or notice pay).
Irregular payment (For example, accrued holiday pay, or an unexpected bonus).
Note: FreePayroll currently does not support ‘irregular’ payment.
- Click on enable.
- Now, when you run payroll for your current period, the employee will automatically be included in your payroll.
Note: You must not give the employee another P45. You just need to give him, the actual payslip.
What is Payment After Leaving?
Payment After Leaving refers to any payments made after an employee's departure date, which could include unpaid wages, accrued holiday pay, or bonuses. It's crucial to handle these payments correctly to ensure accurate reporting to HMRC.
When to Use PAL
Use PAL for any post-termination payments, except for tax-exempt payments like certain redundancy payments over £30,000, which have their own rules. Always use tax code 0T on a Week 1/Month 1 basis, ensuring National Insurance and any student loan repayments are deducted correctly.
If you have to pay an employee after they leave :
- Go to the employee profile
- Update employee tax code 0T on a ‘week 1’ or ‘month 1’ basis (use the code S0T if they’re taxed at the Scottish rate or C0T if they’re taxed at the Welsh rate).
- After updating the employee tax code, now click on the three dots, next to the employee name, and select "Payment After Leaving".
- Select the payment type:
Regular payment (For example, contractual pay such as salary or notice pay).
Irregular payment (For example, accrued holiday pay, or an unexpected bonus).
Note: FreePayroll currently does not support ‘irregular’ payment.
- Click on enable.
- Now, when you run payroll for your current period, the employee will automatically be included in your payroll.
Note: You must not give the employee another P45. You just need to give him, the actual payslip.
Updated on: 03/05/2024
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