What Employers Need to Do When an Employee Leaves
Understanding employee leaving payroll rules is essential for every employer. When an employee leaves your business, you must notify HM Revenue and Customs (HMRC), process their final pay correctly and ensure you make the right tax and National Insurance deductions.
Employee Leaving Payroll Rules for Processing a Departure
If an employee leaves before 5 April and you will not pay them a pension, record their leaving date in your payroll system when processing their final payment. Continue making tax and National Insurance deductions as normal and include them in your next Full Payment Submission (FPS).
If an employee receives their final payment in the current tax year but officially leaves on or after 6 April, do not include the leaving date on the same FPS. Instead, add the employee to the first FPS of the new tax year with their leaving date and zero values for pay and tax fields.
You must provide the employee with a P45 when they leave. Employers who are exempt from online payroll filing can request paper P45 forms from HMRC.
If You Forgot to Report the Leaving Date
If you did not report an employee leaving during the current tax year, correct this in your next FPS. Include the leaving date, enter zero in the pay and tax for the period field and use the last reported payroll totals in the year-to-date section.
You can use either the current FPS payment date or the employee’s final payment date. If you use a previous payment date, include reason code H to show the report corrects an earlier submission.
Correcting an Incorrect Leaving Date
If you reported the wrong leaving date, update the employee’s payroll record only. Do not submit the amended date in another FPS because this may create a duplicate employee record.
If you reported an employee as leaving but they continue working for you, keep the same payroll ID if you have not issued a P45 and remove the leaving date. If you already issued a P45, create a new payroll ID.
Paying a Company Pension
If you continue paying a company pension after retirement, keep the employee on payroll and do not report their leaving details in the FPS.
Use a separate payroll ID for pension payments while referencing the previous payroll ID. Continue using the employee’s existing tax code until HMRC issues a new one.
Mark the occupational pension indicator as yes for every pension payment. You do not deduct National Insurance from registered pension payments, although income tax still applies.
Statutory Maternity, Paternity and Adoption Pay
If an employee leaves while receiving statutory maternity, paternity or adoption pay, you must continue payments until the entitlement period ends.
You can either issue the P45 immediately and tax future payments using code 0T on a week 1 or month 1 basis or continue using the employee’s normal tax code until you make the final statutory payment before issuing the P45.
Paying an Employee After They Leave
If you need to make a payment after an employee has left, including taxable redundancy payments over £30,000, you should usually deduct tax using code 0T on a week 1 or month 1 basis.
National Insurance and student loan deductions usually still apply unless the payment qualifies as exempt redundancy pay. Treat irregular payments, such as holiday pay or bonuses, as weekly payments.
Include the payment in your next FPS using the employee’s original payroll ID and leaving date, and select the payment after leaving indicator. You should also provide written confirmation showing the gross payment and deductions.
If you make the payment in the same tax year, include it in the year-to-date totals. If you pay it in the next tax year, show it as the only amount in the year-to-date field.
Do not issue another P45 after giving the original one to the employee.