Understanding payroll when managing direct payments

Taking on the role of an employer entails responsibilities towards the individuals you employ. This is why the Direct Payment Support Service (DPSS) recommends using a payroll service if you choose to employ a Personal Assistant (PA).

Payroll plays a vital role in ensuring that organisations meet a wide range of legal and regulatory requirements. This includes maintaining accurate records, adhering to tax and employment legislation, and supporting financial transparency across the organisation.

Registering as an employer

If you employ staff directly, you must first register as an employer with His Majesty’s Revenue and Customs (HMRC). This enables you to operate payroll and fulfil your tax obligations.

The payroll service will help you with the process of registering with the HMRC.

Understanding on-costs

When employing staff, the total cost is often more than just their hourly rate or salary. These additional costs are known as ‘on-costs’. They are the expenses that an employer must pay on top of wages to meet legal and contractual obligations.

On-costs can include:

• National Insurance contributions: payments made by employers to the government based on each employee’s earnings
• Pension contributions: the amount employers pay into a workplace pension scheme to support their employee’s future retirement
• Holiday pay and other benefits: this may include statutory holiday pay, sick pay, or any agreed benefits such as incentive schemes

On-costs ensure employees receive the full range of rights and protections they are entitled to, while helping employers to plan and budget accurately.

When calculating the true cost of employing someone, (such as a Personal Assistant (PA)) through direct payments, it is important to include on-costs alongside wages. This gives a more complete picture of the total amount needed to employ and support PAs fairly and sustainably.

On-costs are considered and factored into the overall costing of a direct payment within the cost calculator.

Employment law

Payroll assists with managing how your staff are paid and how their work is tracked. This includes the number of hours worked, leave taken and pension contributions, where applicable.

Tax deductions

Employees in the UK are subject to income tax, through automatic payroll deductions from earnings through the Pay As You Earn (PAYE) system.

Your payroll service will manage this on your behalf. Even if your staff member earns below the tax threshold (£12,570), you still have to notify HMRC. Your Personal Assistant retains the right to a payslip.

Contacting His Majesty’s Revenue and Customs (HMRC)

If it is necessary to contact HMRC regarding a payroll matter, the payroll service can do this on your behalf. There may be an additional fee for this.

Pension contributions

Pension contributions are payroll deductions that come out of an employee’s gross pay. This money goes into a pension pot chosen and administered by the employer. It is separate to the UK state pension.

For the last decade, the Government’s automatic enrolment programme has meant that employees are auto-enrolled into workplace pension schemes. Employees do not have to explicitly opt-in.

The current minimum pension contribution is 8%; 3% from the employer and 5% from the employee.

The minimum qualifying gross pay amount is £120 a week or £520 per month.

Even if your employee earns less than the qualifying amount, they can still choose to opt into a pension scheme if they choose to.

Annual leave payments

If any of your staff work irregular hours, they may be entitled to receive their annual leave as an additional payment.

This is calculated at 12.07% of their hourly rate.

Wage payments

The Direct Payment Support Service (DPSS) offers ongoing support and assistance updates on the various aspects of staff employment and the use of a direct payment.

It is important to recognise that even if you enlist a payroll service, you retain ultimate responsibility as the employer; but if you use a care provider or self-employed staff, you are relieved of most direct employer responsibilities. Even so, it is important to conduct thorough checks when using care provider or self-employed staff.

Certain circumstances may still attribute employer status to you, or the employment arrangement may not be as straightforward as it appears.

Support with direct payments

If you have any questions about direct payments or require further information, contact the Direct Payment Support Service (DPSS).

The DPSS can not assist with setting up direct payments. To enquire about setting up a direct payment, make a request to the adults' social care team.

Direct Payment Support Service (DPSS)