How can a payroll number help your business to function?
Being an employer means juggling a lot of responsibilities, including tracking employee activity and keeping accurate records.
Assigning a payroll number to each employee can help to make this easier.
This article discusses payroll numbers, how they are created and used, and how to avoid mistakes when operating PAYE as a UK employer.
What is the purpose of a payroll number?
A payroll number is a unique identifier that can be assigned to an employee working at a specific company.
All relevant information about a particular employee—including their title, name and contact details, as well as their role, working hours, salary and benefits—can be linked to their payroll number.
This allows companies to track employee activity efficiently by using a single number, reducing the need to include excess and potentially confidential data about their staff across multiple databases.
While it’s not compulsory to assign payroll numbers to employees, the larger the company, the more it makes sense to do it.
As a secondary confirmation of identity, a payroll number reduces the risk of records getting mixed up when a company employs two or more people with identical or similar names. Likewise, if an employee’s name changes during their employment (because they got married, for example), using a payroll number helps ensure continuity in record keeping.
Who creates payroll numbers?
It’s up to each company to choose how to go about creating payroll numbers.
The numbers can be created by the HR department (or, in smaller companies, the person in charge of the payroll), provided by an outsourcing service according to their own system, or generated automatically by payroll software. There are differences in how different software programs handle payroll numbers though, and some systems may not be able to create them.
However payroll numbers are created, it’s a good idea to have the same department or person stay in charge of the task, if possible, to reduce the chance of mistakes.
Whoever is in charge should have access to a full record of old and current payroll numbers, so they can double check that no duplicate payroll numbers are assigned by accident.
Do payroll numbers have to be in a specific format?
In order to prevent identity fraud, payroll numbers should not be based on any confidential information, such as an employee’s National Insurance Number.
Safety considerations aside, there is no strict format to adhere to, and each company can combine letters and numbers to form their payroll numbers according to their own preferred method.
The length of the number usually correlates with the size of the company, with more digits used the larger the payroll.
Many employers choose a sequential method of assigning numbers to their employees, and some companies also choose to add a short descriptive prefix to their payroll numbers as a practical way to distinguish employees in specific roles or departments.
For example, the letters ‘MAR’ in the beginning of a payroll number make it quick to identify all employees currently working in marketing.
How to avoid payroll number issues when operating PAYE
Employers in the UK, with a few exemptions, need to operate PAYE as part of their payroll. This is HMRC’s system for collecting tax and national insurance contributions.
If an employer assigns payroll numbers to their employees, HMRC will also record these in their PAYE system. If no payroll ID is submitted by the employer, HMRC will assign their own code to that employment.
A correct and consistent use of payroll numbers helps clarify potentially confusing situations, such as an employee starting a second job within the same company or an employee being re-employed by a company.
Because a specific payroll number represents a particular employment rather than a particular employee, in both of the above cases, a new payroll number needs to be assigned to keep the records accurate.
Employers also need to be careful if they want to change an employee’s payroll number mid-employment for any reason. If the change is not reported to the PAYE system correctly, the system will automatically create a duplicate employment instead of updating the current one, and such errors can be difficult to fix afterwards.