If you have never run payroll, the language alone can be off putting. PAYE, RTI, FPS, EPS, tax codes, thresholds. Underneath the jargon, though, payroll is just a monthly cycle that does three things: works out what each employee should be paid, takes off the right deductions, and tells HMRC what happened. This guide explains how it actually works, in plain terms, for someone running payroll for the first time.
What PAYE actually is
PAYE stands for Pay As You Earn. It is the system employers use to collect Income Tax and National Insurance from employees as they are paid, rather than leaving them to settle a bill at the end of the year. As the employer, you act as the collection point. You take the tax and National Insurance out of each employee’s pay and send it on to HMRC on their behalf.
How much Income Tax you deduct depends on the employee’s tax code, which reflects how much they can earn tax free. For 2026/27 the standard personal allowance is £12,570 a year, shown as the familiar 1257L code. National Insurance is worked out separately against its own thresholds.
What happens during a pay run
A pay run is the process of calculating everyone’s pay for a given period. For each employee, your payroll works out gross pay, then deducts Income Tax based on the tax code, employee National Insurance on earnings above the primary threshold of £12,570 a year, any student loan repayment, and the employee’s pension contribution. What is left is net pay, the amount that actually reaches their bank account.
The employee gets a payslip showing all of this. Behind the scenes, the employer also owes its own costs on top of gross pay, chiefly employer National Insurance and the employer pension contribution, which never appear on the employee’s payslip but are a real cost to the business.
What goes to HMRC, and when
Every time you pay staff, you must send HMRC a Full Payment Submission, or FPS, on or before payday. This reports what each employee earned and what you deducted. This real time reporting is known as RTI, Real Time Information, and it is not optional. If you need to claim back statutory payments or reduce what you owe, you send a second return called an Employer Payment Summary, or EPS.
You then pay HMRC the tax and National Insurance you have collected, plus your employer National Insurance, by the 22nd of the following month if you pay electronically. Choosing how often to run payroll affects how often you go through this cycle, which is why our guide to payroll frequency, weekly versus monthly versus four weekly is worth a read before you settle on a pattern.
What you are responsible for as an employer
Running payroll is more than paying wages. As an employer you are responsible for deducting the right Income Tax and National Insurance and paying it over on time, assessing staff for pension auto enrolment and paying employer contributions, calculating statutory payments such as sick pay, maternity pay and paternity pay, and handling starters and leavers with the correct forms.
You also have to keep up. Rates and thresholds change every April, statutory payments are uprated, and employment law shifts underneath you. Statutory Sick Pay, for example, changed significantly in April 2026. Each of these duties carries its own deadlines, and missing them is what turns routine payroll into penalties.
What a payroll bureau does on your behalf
A payroll bureau takes the whole cycle off your plate. You tell us who works for you, what they earn, and who has joined or left. We do the calculations, produce the payslips, submit the FPS and EPS to HMRC on time, handle auto enrolment, work out statutory payments, and tell you exactly what to pay and when. When the rates change in April, that is our problem to track, not yours.
For a small business owner, the value is not just accuracy. It can mean spending less time running payroll and checking whether submissions went in. You can see how Purely Payroll handles all of this for you, and if you are weighing it against doing it in house, our page on the benefits of outsourcing payroll lays out the trade off.
Payroll does not have to be complicated. Check our pricing or call us and we will explain your options in plain English.
Based in York? Explore our dedicated payroll services in York.
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