Starters and leavers

12 May 2018

This article was featured in the June 2018 issue of the magazine.

Jill Smith MCIPPdip, CIPP policy manager, covers general basic payroll procedures from a payroll point of view 

You may be wondering whether we need such an article, as basic procedures are part and parcel of everyday payroll duties. Well, even basic procedures change quickly in our world of ever-evolving legislation and procedural updates and even the best of us can struggle to keep up. 

It never hurts to have a refresher of the basics, and the processing of starters and leavers demands precise data and careful attention to detail. 


Starter notification

When someone new joins, you need to set up a new employee record. The details of the new employee are then included in the full payment submission (FPS) under real time information (RTI).

In most organisations (unless it is a small company) notification of a new starter will usually come from the human resources (HR) or personnel department. This will either be a copy of the contract of employment or a pro-forma notification. The notification should be authorised by a delegated person within the HR department and show the following information:

  • full name and title

  • gender

  • employee reference number

  • address

  • date of birth

  • date of start

  • payment frequency/method and bank account details, if appropriate

  • contractual hours: number of hours

  • basic pay, annual salary, hourly rate

  • other contractual allowances

  • job title/description and department

  • location/place of work address or code

  • pension details

  • details of any other emoluments (benefits in kind)

  • cost centre/cost allocation code.

All the above information should be entered into the payroll system.


...demands precise data and careful attention to detail


Starter forms and certificates

Where possible the starter notice should be accompanied by the employee’s recent form P45 or starter checklist. There are several forms and certificates that a new starter will either bring with them or will have to complete. 

  • Form P45 – A starter will often bring a form P45 from their previous employment. Only parts 2 and 3 of form P45 are applicable to the new employer, with part 1A retained by the employee. 

If the new employee provides a form P45 there are certain checks that need to be carried out by the payroll section. Does it relate to the current tax year? If so then the information on the P45 total pay to date, total tax to date, date of the last payment, existing tax code, student loan deduction status and National Insurance (NI) number can be used.

If the P45 is for a previous tax year the figures of previous employment earnings and tax are ignored and are not to be entered onto the current tax year. (Remember this is just basic payroll procedures as form P45 can be used for tax code purposes if it crosses over the tax year 6 April and it is before 24 May; see

If a new employee does not provide a form P45, the employer must ask the employee to complete a starter checklist to collect the information that will be sent to HM Revenue & Customs (HMRC) in the first FPS when the employee is first paid.

  • Using the starter checklist – HMRC has made available an online form starter checklist – – to collect the relevant data. Employers can use these or design and use their own checklists instead if they collect the relevant data and contain the same wording for the employee declaration statements.

There are two essential sections in the starter checklist: the employee declaration; and the student loan questions.

Under RTI rules the starter checklist should be retained by the employer.

The tax code to be used will depend upon which employee statement in the declaration is selected, as shown in the table on the opposite page.

If no statement has been ticked or the form has not been signed, then code 0T is to be operated on the non-cumulative basis.



Tax code to use

Statement A ticked

Emergency tax code on cumulative basis

Statement B ticked

Emergency tax code on non-cumulative basis

Statement C only ticked

BR on cumulative basis


The various student loan questions are used by the employer to determine whether deductions are required and, if so, whether they are under plans 1 or 2. As form P45 identifies whether the previous employer was making deductions, but not which plan applied, the new employer may need the new employee to complete  a starter checklist in addition to any P45.

  • NI certificates – a new starter may bring an age exemption certificate (CA4140), a certificate of election (CA4139) or a deferment certificate (CA2700) as proof of nil or reduced rate liability for NI contributions (NICs). These certificates need to be checked to ensure they are valid and not expired.

A point to remember is that even though HMRC no longer issues certificate CA4140 as proof of state pension age, employees can obtain them from the Department for Work and Pensions. In the absence of this certificate, an employer can view and take a copy of the employee’s birth certificate or passport. Certificates CF383 or CF380A are acceptable alternatives to CA4139 for the married women’s reduced rate liability.


... the person is recorded as a leaver and no further payments generated...


Leaver notification

The payroll department will usually receive a pro-forma notification of leaving from either HR or directly from the line manager. The notification should detail the information required to pay all final monies to the employee, and contain the following:

  • full name

  • payroll number

  • date of leaving

  • address to which final payment, payslip, P45, etc, should be sent

  • reason for leaving (such as resignation, termination, redundancy, death)

  • payment due at time of leaving

  • additional payments to be made

  • annual leave outstanding or overtaken

  • loans outstanding

  • special circumstances

  • special instructions including deductions from pay in respect of lost property, and so on.

It is important that the payroll system is updated as soon as possible so that the person is recorded as a leaver and no further payments generated (other than the final pay due) to prevent over- or underpayments.


Leaver documents

There will be certain forms and documents that would need to be given to the employee on termination of employment. HMRC will be notified that the employee is a leaver as the information will be submitted via the FPS. However, the employer will still need to produce parts 1A, 2 and 3 of form P45 so that the leaver can take their tax history to the next employer and in case the individual needs to complete a self-assessment tax return.

The details to be shown in the P45 include the date of leaving, the tax code last operated and figures of earnings and tax (this employment or year to date). Note, however, that where a tax refund had been withheld because the employee had been involved in an industrial dispute, the amount of tax to date to be shown is as though the refund had been made.

If the employee has provided a valid certificate of election for reduced rate NI liability, then it should be duly completed as appropriate and given to the employee on termination of employment. It is advisable to retain a copy.


Leaver types

A point to note is that there are different kinds of leavers and where the employee has died any earnings due will be taxable but not NICable. If an employee is retiring and is receiving a pension from the employer, the employee is also treated as a leaver.

If the employee has already left the employment and there is a payment due there are special rules to follow when calculating income tax under pay as you earn (PAYE) and NICs. If the payment is the final payment of salary or wage, NICs are calculated using the usual earnings period and category letter.

NICs on any ‘irregular’ payments (such as holiday pay, unexpected bonus, arrears of pay following a backdated pay award) must be calculated using a weekly earnings period, regardless of how the employee was normally paid, and the usual NICs category letter. The NICs rates and limits in force at the time of payment are used.

In cases where employment has ceased but form P45 has not yet been issued, any outstanding payment is subjected to PAYE as normal.

If form P45 has been issued, the following rules must be observed: 

  • Use tax code 0T, so all taxable payments are subject to tax at the employee’s marginal rate without applying any pay adjustment. Note that the calculation is non-cumulative.

  • However, If the payment was a ‘standard’ type payment (such as final payment of salary, bonuses, and so on), then the employer should write to the ex-employee giving details of the date and the amounts of the payment and tax deducted. Use the tax rates and bands in force at the time of the payment. Therefore, if an employee leaves in March but a payment is made in the following May, the tax rates and bands in force in May are used.

There are some additional procedures where a payment comprises one or more ‘termination’ payments, such as redundancy pay – but this is a topic which justifies a whole other feature to itself.

For all things PAYE, go to GOV.UK


Apportionment of salary

Apportionment of salary may be necessary if the employee is not entitled to pay for the whole of the pay period which generally occurs when either the employee’s start date does not coincide with the start of the pay period or the employee’s leaving date is earlier than the last day of the pay period (e.g. the month). 

Apportionment is normally based on a day’s pay derived from the employee’s annual salary.