Flow chart - paying an employee on termination of employment

Where you pay an employee (or former employee) after they have stopped working for you, you must apply PAYE tax and NI. However, there are special rules for determining what tax code and NI thresholds you should use. For tax the key factor in this process is whether you have issued a P45.

Flow chart

The Flow Chart - Paying an Employee on Termination of Employment will help you decide what tax code and NI threshold to use against payments made after an employee leaves.

Definitions for flow chart:

• FPS means a payroll full payment summary
• Termination pay means a payment which is not normal earnings or treated as normal earnings and is compensation for the loss of employment, for example, because of redundancy.

For more information about the taxation of termination payments refer to HMRC’s “Further guide to PAYE and National Insurance contributions”, section 5.11 at https://tinyurl.com/yczooz3q

Documents

Several documents, such as the Payment After Leaving Letter; Leaver’s Details Form and Letter Enclosing P45 and/or Final Payslip may be helpful when making a payment on termination of employment.