Glossary: words you'll hear a lot of in payroll - Featured Image

Glossary: words you'll hear a lot of in payroll

There are a lot of phrases you will hear in the payroll world, so we’ve provided a brief rundown of some of those keywords, along with a brief description for each.  



Construction Industry Scheme (CIS) is an important set of rules for tax and National Insurance contributions when paying subcontractors. Through CIS, contractors must deduct 20% from a subcontractor’s payments.


Gross pay

Gross pay is what the employee receives before all of the relevant tax and National Insurance deductions have been made.  



Her Majesty’s Revenue and Customs (HMRC) is a department of the UK government that handles the collection of taxes and provides payment of various forms of state support. Its also in charge of regimes including national minimum wage.



IR35 is two pieces of legislation designed to differentiate between self-employed workers who own their own business and those deemed employees of the client. As of April 2021, both medium and large private sector clients will decide if a contractor is an employee or self-employed for their assignment, in order to prevent tax avoidance.



KID stands for Key Information Document, which allows workers to fully understand the fees, margins and tax deducted from their wage before agreeing to take on an assignment.


Limited company

A limited company is something everyone needs if they are to become a contractor. Once setup, the individual becomes a director of the business and therefore all responsibilities, including financial and administrative, is dealt with by them. 


National insurance

National Insurance is what an individual contributes towards the welfare state, which pays towards a range of benefits, including state pension, maternity pay and contribution-based job seeker’s allowance.


Net pay

Net pay is what the employee takes away after all of the relevant tax and National Insurance deductions have been made.



Pay As You Earn (PAYE) is a method in which the employee pays income tax and National Insurance contributions. The employer deducts these contributions from an employee’s overall wage earnings before they are fully paid.



Supervision, Direction and Control are tests conducted by HMRC to determine if a worker is employed or self-employed, and eligible for expenses.



Statutory Sick Pay (SSP) is payment an employee receives if they have been off work sick for more than 4 days and are too unwell to work. The employer pays a weekly amount of £94.25 for up to 28 weeks.



A subcontractor is an individual that has been given a portion of an existing contract, performing work under a contractor.        



Tax is a compulsory financial charge collected by the government which everyone in employment must start paying once they earn a certain amount of income. This helps fund a variety of public services including police, healthcare and education.



Umbrella is a company that works alongside an agency, acting as an intermediary between them and the contractors. They provide payroll services and handle all day-to-day tasks, from timesheets to holiday/sick pay.

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