Logically, the basics of payroll are straightforward but unfortunately, there are various rules and thresholds which can make actually operating a payroll less so.
In calculating an employee’s pay, normally, you begin with their gross pay and then work out the deductions. After taking away all the deductions, the net pay figure is what is left owing to the employee.
Generally, (assuming the employee is earns over the threshold amounts), there is tax to deduct under (PAYE – pay as you earn), National Insurance. There may be other deductions, such as pension contributions, student loan repayments (after 1998), deductions arising from attachment of earnings order and charitable donations (this list is not exhaustive).
On top of that, an employer must pay employers national insurance contributions (generally on the gross pay, if above the threshold).
There is also national insurance contributions payable on certain benefits in kind.
The employee gets paid their net pay (gross pay less all the applicable deductions), the employer pays over the deductions to the relevant organisation. (eg. PAYE, NICs – both employees and employers NICs – and student loans to HMRC, pension contributions to the pension company and so on)