What to do when an employee leaves

When an employee leaves or retires, there are a few processes you have to follow and forms to fill out to make sure you do everything on the right side of the law.

The P45

  • You have to fill out a P45 when an employee leaves your company. It has four parts: 1,1A, 2 and 3.
  • You need to fill in details of your employer and PAYE reference, the employees' details, tax code, earnings and tax deductions, their leaving date, and whether you've been making student loan deductions for the employee.
  • Once completed, you send part 1 to your local HMRC office immediately.
  • You give parts 1A, 2 and 3 to the employee.
  • You can fill out the P45 online, and if you have more than 50 employees you're legally required to do so. From April 2011, all business will be legally required to fill out P45 forms online.
  • Give parts 1A, 2 and 3 to employee and send part 1 to HMRC

Changes to their P11

  • All you need to do to the employee's P11 when they leave is enter their leaving date on it (unless they are exempt from needing a P11).
  • You won't have any more information to enter into it after that.
  • Keep the P11 and send the right info off to HMRC at the end of the tax year as you would with any other P11.

Making final payments to an employee

  • You need to apply normal PAYE rules to any standard payments (final payments, holiday pay, bonuses, arrears of pay) as usual.
  • If you've already issued a P45 before these payments, you'll need to use a special tax code - contact HMRC to find out which one.
  • Deal with any expenses due as you normally would.

 

What to do if you are making an employee redundant

You need to charge income tax (through PAYE) on:

  • Lump sums of more than £30,000.
  • Any amount of more than £30,000 that an employee has won through an employment tribunal (but not one any legal fees incurred).
  • Any payment due to an employee who leaves under a restrictive covenant such as not being allowed to work for a competitor.
  • No NICs are due on redundancy lump-sums (although they still are on other amounts, such as final wages due).

What to do if an employee is retiring

  • If you're not paying the employee pension, you simply fill out a P45 as you would for any other leaving employee.
  • If you are paying a pension, you don't fill out or send a P45, as HMRC treat this situation as if the employee was still on your payroll.
  • You need to contact HMRC within 14 days to tell them the employee's details, retirement date, the total pay they've received from you in the current tax year up to their retirement date, the tax deductions for them over the tax year, and the pension you'll be paying them.
  • You can use a P46 (Pen) to submit this info, or you can use an email or letter, making sure you provide all details needed.
  • You need to give the employee a copy of either the form or the correspondence.
  • Any lump sums paid to a retiree may be exempt from tax. Contact HMRC's pension schemes service enquiry line on 0115 974 1600 for advice.

Jargon buster

P11: The worksheet form you use throughout the tax year to record an employee's tax, pay and NICs.

FAQ

What do I do if an employee has died?
Fill out a P45 for them and send all four parts to HMRC, giving the name of their personal representative (if you know it) and detailing how much money is owed to them. You owe any wages and other payments you would as if they had left the company. You also need to fill out details of any payments in their P11, as above.

What do I do if a former employee needs another copy of their P45 or if I need to amend it at a later date?
You're not allowed to amend a P45 or complete another one for someone once you've issued one so you need to contact HMRC.

What do I do if an employee leaves while I am paying them statutory maternity, paternity or adoption pay?
You are legally obliged to continue paying them the required amount until the end of their statutory leave, even if they decide to leave the company before the end of this period. (See Resources below for more help with this.)

Resources

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