Guide

What is a payroll number?

A payroll number is a unique identifier that an employer gives to each employee. They help you manage payroll records.

An employee payslip and cash.

As your team grows, it can get harder to manage individual records and pay. By assigning payroll numbers, you can handle staff pay, deductions, and records more systematically. Using numbers instead of names supports data privacy, and makes it harder for the wrong payment to go to the wrong place.

In this short guide, we explain everything you need to know about payroll numbers and how to use them. Learn where to add payroll numbers to payslips, and best practices for using them.

Adding payroll numbers to UK payslips

Payroll numbers are a way of identifying your employees for payroll purposes. Every employee payroll number should be a unique identifier – this can be a mix of letters and numbers assigned only to them.

Payroll numbers help you identify individual employee payroll records and are often referred to as Payroll ID by HMRC. Using a payroll number makes it harder to mix up employee records, and easier to protect their privacy.

As already mentioned, you don’t have to use a payroll number when you pay employees, but it can be helpful if you have a large team. Say you send wages and a payslip to another employee with a similar name – private information like total income and a National Insurance number could end up in the wrong hands.

In contrast, a payroll number is used purely for payroll purposes. Giving employees a unique number can help with payroll processing and legal and tax compliance with HMRC.

Managing payroll numbers

How to locate and use payroll numbers

An employee can usually find their payroll number on payslips, through their HR department, or within an online employee portal.

As an employer, you can use employee payroll numbers to make sure you’re paying the right person the right wages. Payroll records can also be assigned to these numbers, making it easier to manage employee pay information (like benefits, bonuses, and expenses).

Generating and assigning payroll numbers

You can generate and assign payroll numbers yourself, or using payroll software.

Make sure each payroll number is unique. You can combine letters and numbers, and use a prefix to differentiate between departments – e.g. your head of marketing could have the payroll number MAR-012345.

If an employee leaves and rejoins the company, you’ll need to assign them a new payroll number. This is because a payroll number applies to the specific employment, not the employee. An employee will have different payroll numbers for different jobs and periods of employment.

PAYE reference numbers versus payroll numbers

Both numbers are used in the payroll process – and put on wage slips – but they’re not the same thing.

The main difference is that PAYE reference numbers apply to tax, and payroll numbers apply to employment. You’re responsible for giving employees a payroll number (if you choose), but HMRC provides a PAYE number for employees’ tax and National Insurance purposes.

Avoiding common payroll number pitfalls

Using employee payroll numbers can simplify your record keeping and help ensure everyone is paid what they’re due.

But there are some issues to avoid:

  1. Make sure you use a repeatable format for your payroll numbers – e.g. the first three letters of an employee’s department, plus five digits.
  2. And make sure you assign new payroll numbers to employees who leave and rejoin the company.

Do report to HMRC if you decide to change an employee’s payroll number during their employment – otherwise, the PAYE system could have duplicate numbers for one employee (and you could end up paying them twice).

Enhancing payroll processes with Xero

Payroll numbers are just one way to manage employee pay more effectively.

With Xero payroll software in place, admin tasks like setting and managing payroll numbers are simple. You can include payroll numbers on your employees’ Xero payslips, maintain employment records, and submit compliant payroll reports to HMRC.

Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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