Payroll Advice

Payments after P45

What is the process we should follow when issuing a payment after employment has ended? For example, if we pay the outstanding holiday that's been accrued a few weeks after the leaving date, should a P45 be re-issued?

With regards to PAYE, if the employee has already been given a P45, and you now make a subsequent payment, then you must deduct tax at the Basic Rate (using code BR non-cumulative). You must also supply the employee with a letter detailing:

  • The date paid
  • The gross amount paid
  • The amount of tax deducted from this payment.

You must not issue the employee with a further P45, and you do not need to notify the tax office either. Any pay, tax or NICs deducted are added to all other payments in the same tax year and must be reported on the end of year form P14 (see HMRC guide CWG2, page 15).

The period to be used for the calculation of National Insurance Contributions is dependent on the payment type. If it were a final payment of salary or wages (referred to as a standard payment) then it would be considered a regular payment and therefore attract NICs using the employees normal payment frequency. If the employee was normally paid monthly and is now due a part month payment of wages after leaving, then the payment period for NICs is monthly.

If it is a sum such as an unexpected bonus or backdated pay, then it is an irregular payment and it's therefore correct to use single weekly period. So for a monthly paid employee who now receives a bonus payment or back pay, the payment period for the NIC calculation is weekly.

If some of the earnings are regular and some irregular, then the amounts are added together and treated as a single regular payment.

If the payment is made within six weeks of leaving then the employee's usual contribution table letter is to be used.

If the payment is made six weeks after leaving and the employee was paying NICs using a contracted-out table letter, then you must now work out NICs using the equivalent, not the contracted-out rate.

Some reputable payroll systems exceed the basic requirements of the HMRC payroll standard and offer fully automated processing for payments after leaving. For example Ceridian Payroll offers Regular (or Periodic) and Irregular payment after leaving options as standard. This automatically reopens and closes the employee record and handles all the tax and NIC implications for you. There's no need to enter or change tax codes or NIC letters - all this is automated. All you have to do is enter the correct employment status indicator type (P or I) and the additional payment amounts to be made.


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