5.3 Statutory Payments, Deductions & Payroll Documentation
Key Takeaways
- Statutory Sick Pay requires a Period of Incapacity for Work of at least 4 consecutive days, 3 unpaid waiting days, and average weekly earnings at or above the Lower Earnings Limit of £125 a week, paying £118.75 a week for up to 28 weeks in 2025/26.
- Statutory Maternity Pay requires 26 weeks' continuous service, and pays 90% of average weekly earnings for the first 6 weeks then the lower of 90% of AWE or £187.18 a week for 33 weeks, recoverable at 92% or at 103% under Small Employers' Relief.
- Payroll deductions are classified as Statutory (Income Tax, NICs, Student Loans, Attachment of Earnings Orders) or Voluntary (trade union dues, charity give-as-you-earn, private health), requiring strict consent and priority order.
- Core statutory payroll documentation includes Form P45 (leaver details in 4 parts), Form P60 (End of Year Certificate issued by 31 May), Form P11D (Benefits in Kind issued by 6 July), and the P11 Deductions Working Sheet.
- Student loan repayments are statutory deductions taken at 9% above the plan threshold (Plan 1 £26,065, Plan 2 £28,470, Plan 4 £32,745, Plan 5 £25,000) or 6% above £21,000 for a postgraduate loan, applied from an HMRC SL1 or PGL1 start notice.
5.3 Statutory Payments, Deductions & Payroll Documentation
1. Statutory Sick Pay (SSP) Mechanics & Rules
Statutory Sick Pay (SSP) is the statutory minimum payment an employer must pay to an eligible employee who is absent from work due to illness or injury under the Social Security Contributions and Benefits Act 1992.
Eligibility Requirements
To qualify for SSP, an employee must satisfy four cumulative statutory conditions:
- Classified as an Employee: Works under a contract of service.
- Period of Incapacity for Work (PIW): Absent due to sickness for at least 4 consecutive calendar days (including weekends and non-working days).
- Average Weekly Earnings (AWE): AWE in the 8-week relevant period prior to sickness must be equal to or greater than the Lower Earnings Limit (LEL) of £125.00 per week for 2025/26.
- Notification: Must notify the employer within the company's designated timeframe (or within 7 days).
Payment Mechanics & Rates
- Waiting Days: The first 3 Qualifying Days of a PIW are unpaid "Waiting Days". SSP entitlement begins on the 4th Qualifying Day.
- Statutory Rate (2025/26): £118.75 per week (or daily equivalent based on Qualifying Days worked per week). The rate is uprated every April, so always read it from the current HMRC rates and thresholds page or the AAT reference material.
- Maximum Duration: Payable for up to a maximum of 28 weeks in a single PIW or linked period of sickness (sicknesses separated by 8 weeks or less are linked).
- Employer Recovery: SSP is paid by the employer and is 100% non-recoverable from HMRC (employers bear the full cost).
2. Statutory Maternity Pay (SMP), Paternity Pay (SPP) & Adoption Pay (SAP)
Statutory Maternity Pay (SMP) Eligibility & Rates
SMP is payable to pregnant employees who have completed at least 26 weeks of continuous service with the employer reaching into the 15th week before the Expected Week of Childbirth (EWC), and whose AWE is at least the LEL (£125/wk for 2025/26).
SMP is paid for a total maximum duration of 39 weeks:
| Payment Period | Statutory Rate (2025/26) |
|---|---|
| First 6 Weeks (Higher Rate) | 90% of Employee's Average Weekly Earnings (AWE) (No upper cap). |
| Remaining 33 Weeks (Lower Rate) | Lower of £187.18 per week (2025/26) OR 90% of Employee's AWE. |
Employer Recovery & Small Employers' Relief (SER)
Unlike SSP, employers are entitled to reclaim Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), and Statutory Adoption Pay (SAP) from HMRC by deducting recovered amounts from monthly PAYE/NIC remittances.
- Standard Recovery Rate: All employers can recover 92% of gross SMP/SPP/SAP paid.
- Small Employers' Relief (SER): Employers qualify for SER if their total Class 1 NIC liability — employee primary plus employer secondary combined — in the qualifying tax year was £45,000 or less. It is not a secondary-NIC-only test.
- SER Recovery Rate: Small employers recover 103% of gross SMP/SPP/SAP paid (100% of the statutory payment plus an additional 3% compensation for the employer's NIC cost).
3. Statutory vs. Voluntary Payroll Deductions & Priority Rules
Deductions from an employee's pay packet are legally segregated into Statutory Deductions (mandated by law) and Voluntary Deductions (agreed by contract).
┌─────────────────────────────────────────┐
│ Gross Employment Pay │
└────────────────────┬────────────────────┘
│
┌───────────────────────────┴───────────────────────────┐
▼ ▼
┌─────────────────────────────┐ ┌─────────────────────────────┐
│ Statutory Deductions │ │ Voluntary Deductions │
│ (Mandatory by Legislation) │ │ (Employee Consent Required) │
└──────────────┬──────────────┘ └──────────────┬──────────────┘
│ │
┌────────────┼────────────┐ ┌────────────┼────────────┐
▼ ▼ ▼ ▼ ▼ ▼
PAYE Tax Class 1 NICs Student Loans / AEOs Private Pension Union Dues Give-As-You-Earn
Statutory Deductions
Employers are legally required or court-ordered to deduct these without needing separate written employee consent:
- PAYE Income Tax
- Class 1 Primary NICs
- Student Loan and Postgraduate Loan Repayments
- Attachment of Earnings Orders (AEOs) for unpaid civil debts, council tax, or child maintenance.
Voluntary Deductions
Requires written authorization under the Employment Rights Act 1996 s.13:
- Employee voluntary pension contributions
- Trade union subscriptions
- Private healthcare scheme top-ups
- Payroll Give As You Earn (GAYE) charitable donations.
Statutory Order of Deduction Priority
When processing payroll, deductions MUST be applied in strict statutory sequence:
- PAYE Income Tax & Class 1 Primary NICs
- Statutory Pension Contributions (Net Pay arrangement)
- Attachment of Earnings Orders (AEOs) - subject to the employee's Protected Earnings Rate (PER)
- Student Loan Repayments
- Voluntary Deductions.
4. Student Loan & Postgraduate Loan Repayment Mechanics
Student loan deductions are calculated on gross pay subject to NICs above statutory annual thresholds, deducted at specified percentage rates:
| Loan Plan Type | 2025/26 Annual Threshold | Monthly Threshold | Repayment Rate |
|---|---|---|---|
| Plan 1 | £26,065 | £2,172.08 | 9% above threshold |
| Plan 2 | £28,470 | £2,372.50 | 9% above threshold |
| Plan 4 (Scotland) | £32,745 | £2,728.75 | 9% above threshold |
| Plan 5 (England, courses starting on or after 1 August 2023) | £25,000 | £2,083.33 | 9% above threshold — but repayments did not begin until April 2026 |
| Postgraduate Loan | £21,000 | £1,750.00 | 6% above threshold |
Thresholds are uprated most Aprils, so treat the figures above as the 2025/26 set and read the live values from HMRC's rates and thresholds page for any other year. The employer applies the plan type notified by HMRC on an SL1 or PGL1 start notice, or shown on the employee's P45 or starter checklist — never the plan the employee thinks they are on.
If an employee has both an Undergraduate Loan (Plan 1, 2, or 5) and a Postgraduate Loan, deductions are made concurrently for both loans.
5. Statutory Payroll Documentation & Forms
| Form Code | Official Name & Purpose | Statutory Issuance Deadline | Key Information Contained |
|---|---|---|---|
| Form P45 | Details of employee leaving employment (4 Parts). | Given to employee on leaving date. | Part 1 sent to HMRC via RTI; Parts 2/3 given to employee for new employer; Part 4 retained. Details final tax code, total YTD gross pay, and total YTD tax paid. |
| Form P60 | End of Year Certificate issued to all active employees on 5 April. | Provided to employee by 31 May following tax year end. | Summarizes total annual gross taxable pay, PAYE tax deducted, final tax code, and employee/employer NICs paid in the tax year. |
| Form P11D | Return of Expenses and Benefits in Kind provided to employees/directors. | Provided to employee & HMRC by 6 July following tax year end. | Details cash equivalents of non-cash benefits (company car, medical insurance, interest-free loans) for Class 1A NIC and tax coding. |
| Form P11 | Deductions Working Sheet (or electronic equivalent). | Maintained continuously during tax year. | Internal payroll ledger tracking weekly/monthly gross pay, tax code, PAYE tax, employee NICs, employer NICs, and statutory payments for each employee. |
6. Worked Example: SSP & SMP Calculations
Scenario A: Statutory Sick Pay (SSP)
An employee who normally works 5 days per week (Monday to Friday) is sick from Monday 1 June to Friday 12 June 2026 (10 working days, 12 calendar days). Average weekly earnings exceed £123.
- Period of Incapacity for Work (PIW): 12 consecutive days (Qualifies).
- Qualifying Days: 10 working days.
- Unpaid Waiting Days: First 3 working days (Mon 1, Tue 2, Wed 3 June).
- Paid SSP Days: 7 working days (Thu 4 June to Fri 12 June).
- Weekly SSP Rate: £118.75.
- Daily SSP Rate: £118.75 ÷ 5 qualifying days = £23.75 per day.
- Total SSP Paid: .
Scenario B: SMP Recovery for Small Employer
Small business Alpha Ltd pays an employee £500/week SMP during the first 6 weeks.
- Gross SMP Paid: .
- Employer Class 1 NICs in Prior Year: £12,000 (Qualifies for Small Employers' Relief, ≤ £45,000 threshold).
- SER Recovery Rate: 103%.
- Amount Reclaimed from HMRC: (Offsetting £3,090 against monthly PAYE/NIC payment to HMRC).
7. Exam Traps & Common Pitfalls
Exam Trap 1: Expecting Employers to Recover Statutory Sick Pay (SSP) Candidates often confuse SSP recovery with SMP recovery. SSP is 100% non-recoverable by employers. Only statutory family payments (SMP, SPP, SAP) can be reclaimed from HMRC.
Exam Trap 2: P45 Distribution Errors Remember: Part 1 of Form P45 is transmitted digitally to HMRC by the old employer. Parts 2 and 3 are handed to the departing employee to give to their new employer.
Exam Trap 3: P60 and P11D Statutory Deadlines Memorize the exact statutory deadlines! Form P60 must be given to employees by 31 May. Form P11D and P11D(b) must be submitted and handed out by 6 July.
An employee is off sick from work for 10 consecutive working days (Monday through Friday for 2 weeks). They satisfy all SSP eligibility conditions. The weekly rate of SSP for 2025/26 is £118.75 based on a 5-day working week. How much Statutory Sick Pay (SSP) should the employer pay?
Small Business Ltd pays £2,000 of Statutory Maternity Pay (SMP) to an employee. Small Business Ltd qualifies for Small Employers' Relief (SER) because its annual Class 1 Secondary NICs are under £45,000. How much can Small Business Ltd reclaim from HMRC?
What is the statutory deadline by which an employer must provide Form P60 (End of Year Certificate) to all employees who were in their employment on 5 April?
An employee on Student Loan Plan 1 (2025/26 annual threshold £26,065; monthly threshold £2,172.08) earns £3,172.08 gross in a month. Student loan repayments are charged at 9% above the threshold. What is the statutory student loan deduction for the month?