Direct Payment payroll explained

Why payroll exists here at all

If you employ a Personal Assistant, you are an employer in the eyes of HMRC, exactly like a small business. That means operating PAYE: working out the right deductions, paying the employee the right net amount, paying HMRC what is owed, and reporting it all on time.

This is the most common reason people who could otherwise manage a Direct Payment perfectly well ask for help. Not because it is conceptually hard, but because it is unforgiving: it happens every week or month, the deadlines are real, and mistakes compound quietly until someone notices.

Many councils recognise this and include an allowance for payroll or administrative support in the personal budget. Whether yours does is worth asking about, because it changes the calculation entirely.

Registering as an employer

Before the first payday you need to:

1. Register as an employer with HMRC and get a PAYE reference. This has to be done before you can report payments properly, and it takes a little time, so start early.
2. Set up a way to run payroll. Either payroll software that can report to HMRC in real time, or a payroll service that does it for you. Manual calculation on paper is not a realistic option now that reporting is digital.
3. Get employer's liability insurance in place before anyone starts work.
4. Open a separate bank account for the Direct Payment if your council has not required one already. Mixing this money with household money makes reviews far harder than they need to be.
5. Collect the right information from your PA — P45 or starter details, National Insurance number, date of birth, address. Their tax code depends on it.

If you are using a payroll service, most of this is done for you or alongside you. If you are doing it yourself, do it in this order and before the first shift, not after.

What happens every pay run

Weekly, fortnightly or monthly, the same cycle:

1. Hours are confirmed

From timesheets, including any additional hours, sleep-ins, bank holiday work or travel time that counts as working time.

2. Gross pay is calculated

Hours at the agreed rate, plus any holiday pay, statutory sick pay or other statutory payments due in that period.

3. Deductions are worked out

Income tax under PAYE using the employee's tax code, employee National Insurance if their earnings reach the threshold, and pension contributions if they are enrolled.

4. A payslip is produced

Itemised, showing gross pay, each deduction and net pay. It must be given to the employee on or before payday. This is a legal requirement, not a courtesy.

5. The employee is paid

The net amount, on the agreed date. Late or irregular payment is one of the fastest ways to lose a good PA.

6. HMRC is told

A Full Payment Submission on or before payday. This is real-time reporting: it happens every pay run, not once a year.

7. HMRC is paid

The tax and National Insurance owed — both the employee's deductions and the employer's National Insurance — by the due date, monthly or quarterly depending on your arrangement.

Then there is the annual cycle: end-of-year submissions, P60s for employees, and updating rates when the minimum wage and thresholds change in April.

The true cost of employing someone

This catches almost everybody. The hourly rate you agree with a PA is not what the arrangement costs. On top of gross pay, expect some or all of:

• Employer's National Insurance on earnings above the relevant threshold — an employer cost, not a deduction from the employee
• Employer pension contributions, where your PA is enrolled
• Holiday pay, which is paid time not worked, and cover for that time if you need it
• Statutory sick pay when someone is unwell
• Employer's liability insurance
• Payroll support, if you use a service
• Training costs, and paid time while training
• Recruitment costs when someone leaves

A budget built only on hourly pay will run short, usually around the first holiday period. If your plan looks like it has not accounted for these, raise it with your council early — it is a much easier conversation at the planning stage than after an overspend.

Pension duties

Automatic enrolment applies to individual employers of Personal Assistants. In outline, you must:

• Assess your PA against the age and earnings criteria
• Enrol them into a qualifying workplace pension scheme if they meet them, and make employer contributions
• Write to them explaining their position, including where they do not need to be enrolled
• Keep records of the assessment and any enrolment
• Re-assess periodically, and re-enrol eligible staff at the required intervals
• Complete a declaration of compliance

An employee can choose to opt out after being enrolled, but you cannot skip the process or encourage them to opt out. Failing to carry out these duties can lead to penalties, and it is one of the most commonly missed obligations in PA employment — usually because nobody mentioned it when the Direct Payment was set up.

Holiday and sick pay

Holiday pay is not optional and not a bonus. Paid annual leave accrues from the first day of employment, applies pro rata to part-time staff, and is a genuine cost that has to sit in the budget.

Where hours vary week to week, calculating holiday pay correctly requires an average over a reference period rather than a guess, and this is an area where individual employers frequently underpay without realising. If your PA's hours are irregular, it is worth having the calculation checked.

Statutory Sick Pay applies where an employee is off sick and meets the qualifying conditions. Your contract should say how sickness is reported, and your budget should anticipate that it will happen.

Where it usually goes wrong

Paying cash with no records

The most serious one. It leaves you exposed to HMRC, leaves your PA without employment rights or a contribution record, and will not survive a council review.

Never registering as an employer

Sometimes for months, because nobody said it was needed. Fixable, but it accumulates.

Missing real-time submissions

PAYE reporting happens every pay run. Annual catch-ups are not how it works any more.

Forgetting pension duties entirely

Extremely common, and the one with the most direct penalty risk.

Getting holiday pay wrong on variable hours

Usually underpaid, usually unintentionally, and it creates a liability that grows.

Not updating rates in April

The minimum wage and thresholds change. A rate that was legal in March may not be in April.

Mixing the money

Direct Payment funds running through a household account makes a review enormously harder and can look worse than it is.

Fixing a mess

If you have read the list above with a sinking feeling, the important thing to know is that almost all of it is fixable. Underpaid tax, missed pension duties and years of absent payslips are all things that get sorted out routinely, and the sooner one is looked at the smaller the job. HMRC and The Pensions Regulator both have established routes for putting historic errors right.

The usual sequence is: establish what has actually been paid and when; register as an employer if that has not happened; bring HMRC reporting up to date and disclose rather than conceal; carry out the pension assessment and put it right; recalculate any underpaid holiday pay and agree how it will be settled; issue the paperwork that should exist; and go to your council with a clear account rather than waiting for the review to find it.

Disclosing a problem and correcting it is consistently treated better than a problem discovered by someone else. Nobody involved wants to punish a family that got out of its depth with administration nobody explained.

Where Oakline fits

Payroll is one of the core things we do for individuals and families, and for many people it is the whole reason they contact us.

We can register you as an employer, run the pay cycle, produce payslips, make real-time submissions to HMRC, handle employer National Insurance calculations, carry out pension assessment and enrolment, calculate holiday and statutory sick pay, deal with starters and leavers, complete year-end reporting, and keep records in a state your council can review without difficulty. We can also take on a historic mess and bring it up to date.

What we are not is a tax adviser, an accountant or a financial adviser. Where you need advice on your own tax position, benefits or a complex employment law question, we will tell you that plainly and point you towards the right kind of help.

Tell us where things stand — including if the answer is "I have no idea".

General information, not advice.Tax, National Insurance, minimum wage and pension rules change, usually each April. This guide is not tax, legal or financial advice. Confirm current requirements with HMRC or a suitably qualified adviser.