Understanding Pay Codes

What is a Pay Code?

A pay code describes how an individual payment or deduction should be treated by the tax calculation engine and subsequently reported. Pay codes have a 1:1 relationship with pay lines but as pay lines cannot be created directly they also have a direct relationship with pay instructions.

For example, a tax pay instruction when passed through the calculator will always result in a pay line that has a pay code type of TAX.

Warning

Pay codes have a direct impact on payroll calculations and if mis-configured could result in employees paying too much or too little tax.

If you are unsure of the tax treatment to use please seek advice from a payroll professional.

System Pay Codes

Every employer is preloaded on creation with the following "system" pay codes, the system pay codes are marked as read-only and only a subset of their properties can be changed; they cannot be deleted.

Code	Type	Description	NIable	Taxable	Default Nominal
BASIC	Payment	Basic Pay	yes	yes	Payroll Liability
NI	Deduction	National Insurance	no	no	PAYE And NIC
NIADJ	Deduction	National Insurance Adjustment	no	no	PAYE And NIC
PENSION	Deduction	Pension Contribution - Net Based	yes	no	Pension
PENSIONRAS	Deduction	Pension Contribution - Relief At Source	yes	yes	Pension
PENSIONSS	Payment	Pension Contribution - Salary Sacrifice	yes	yes	Pension
SAP	Payment	Statutory Adoption Pay	yes	yes	Payroll Liability
SAPOFFSET	Payment	Statutory Adoption Pay Offset	yes	yes	Payroll Liability
SHPP	Payment	Statutory Shared Parental Pay	yes	yes	Payroll Liability
SHPPOFFSET	Payment	Statutory Shared Parental Pay Offset	yes	yes	Payroll Liability
SLOAN	Deduction	Student Loan Repayment	no	no	PAYE And NIC
SMP	Payment	Statutory Maternity Pay	yes	yes	Payroll Liability
SMPOFFSET	Payment	Statutory Maternity Pay Offset	yes	yes	Payroll Liability
SPP	Payment	Statutory Paternity Pay	yes	yes	Payroll Liability
SPPOFFSET	Payment	Statutory Paternity Pay Offset	yes	yes	Payroll Liability
SSP	Payment	Statutory Sickness Pay	yes	yes	Payroll Liability
SSPOFFSET	Payment	Statutory Sickness Pay Offset	yes	yes	Payroll Liability
TAX	Deduction	Tax	no	no	PAYE And NIC
LOAN	Deduction	Loan	no	yes	Other Payroll Deductions

Custom Pay Codes

You are free to create an unlimited number of custom pay codes for your employers, you have complete control over their tax treatment and reporting.

For example you may wish to create a pay code for paying employees overtime, typically this would look like this.

Code	Type	Description	NIable	Taxable	Default Nominal
OVERTIME	Payment	Overtime	yes	yes	Payroll Liability

curl -X POST \
  'https://api.test.payrun.io/Employer/ER001/PayCodes' \
  -H 'Accept: application/xml' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/xml' \
  -d '<?xml version="1.0"?>
<PayCode xmlns:xsd="http://www.w3.org/2001/XMLSchema" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">
  <EffectiveDate>2017-01-01</EffectiveDate>
  <Revision>1</Revision>
  <Code>OVERTIME</Code>
  <Description>Overtime</Description>
  <Niable>true</Niable>
  <Taxable>true</Taxable>
  <Territory>UnitedKingdom</Territory>
  <Region>NotSet</Region>
  <Type>Payment</Type>
  <Benefit>false</Benefit>
  <Notional>false</Notional>
  <NonArrestable>false</NonArrestable>
  <Readonly>false</Readonly>
  <NominalCode href="/Employer/ER001/NominalCode/NOM001" />
</PayCode>'

curl -X PUT \
  'https://api.test.payrun.io/Employer/ER001/PayCodes' \
  -H 'Accept: application/json' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/json' \
  -d '{
  "PayCode": {
    "EffectiveDate": "2017-01-01",
    "Revision": "0",
    "Code": "OVERTIME",
    "Description": "Overtime",
    "Niable": "true",
    "Taxable": "true",
    "Territory": "UnitedKingdom",
    "Region": "NotSet",
    "Type": "Payment",
    "Benefit": "false",
    "Notional": "false",
    "NonArrestable": "false",
    "Readonly": "false",
    "NominalCode": {
      "@href": "/Employer/ER001/NominalCode/NOM001"
    }
  }
}'

To use a custom pay code in a calculation you need create Primitive Pay Instruction, then simply pass your new custom pay code along with a gross monetary value payable in the period.

curl -X POST \
  'https://api.test.payrun.io/Employer/ER001/Employee/EE001/PayInstructions' \
  -H 'Accept: application/xml' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/xml' \
  -d '<?xml version="1.0"?>
<PrimitivePayInstruction xmlns:xsd="http://www.w3.org/2001/XMLSchema" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">
  <StartDate>2017-05-01</StartDate>
  <EndDate>2017-05-30</EndDate>
  <Code>OVERTIME</Code>
  <Value>300.00</Value>
</PrimitivePayInstruction>'

curl -X POST \
  'https://api.test.payrun.io/Employer/ER001/Employee/EE001/PayInstructions' \
  -H 'Accept: application/json' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/json' \
  -d '{
  "PrimitivePayInstruction": {
    "StartDate": "2017-05-01",
    "EndDate": "2017-05-30",
    "Code": "OVERTIME",
    "Value": "300.00"
  }
}'

In the case of overtime where you may have multiple overtime rates, you can reuse the same pay code but override the description on the primitive pay instruction to differentiate between the different rates paid to the employee on their payslip. Or if you prefer you can create seprarate custom pay codes for each variation of overtime, this would allow for more advanced reporting in the future should you wish to report on all "Overtime (x2 rate)" paid. Importantly the tax and NI treatment are identical.

Code	Type	Description	Niable	Taxable	Default Nominal
OTIME2	Payment	Overtime (x2 rate)	yes	yes	Payroll Liability

curl -X POST \
  'https://api.test.payrun.io/Employer/ER001/PayCodes' \
  -H 'Accept: application/xml' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/xml' \
  -d '<?xml version="1.0"?>
<PayCode xmlns:xsd="http://www.w3.org/2001/XMLSchema" xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">
  <EffectiveDate>2017-01-01</EffectiveDate>
  <Revision>1</Revision>
  <Code>OVERTIME2</Code>
  <Description>Overtime (x2 rate)</Description>
  <Niable>true</Niable>
  <Taxable>true</Taxable>
  <Territory>UnitedKingdom</Territory>
  <Region>NotSet</Region>
  <Type>Payment</Type>
  <NominalCode href="/Employer/ER001/NominalCode/NOM001" />
</PayCode>'

curl -X PUT \
  'https://api.test.payrun.io/Employers' \
  -H 'Accept: application/json' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/json' \
  -d '{
  "PayCode": {
    "EffectiveDate": "2017-01-01",
    "Revision": "1",
    "Code": "OVERTIME2",
    "Description": "Overtime (x2 rate)",
    "Niable": "true",
    "Taxable": "true",
    "Territory": "UnitedKingdom",
    "Region": "NotSet",
    "Type": "Payment",
    "NominalCode": {
      "@href": "/Employer/ER001/NominalCode/NOM001"
    }
  }
}'

Non Arrestable Pay

A pay code flagged as non arrestable will be excluded from the sum of arrestable pay when calculating an Attachment of Earnings order.

HMRC have specific rules about pay that should be treated as arrestable pay, details can be found on the treatment here on the Gov.uk website. When creating custom pay codes you should take this into consideration as by default the code will be considered arrestable.

By default the PayRun.io system codes for Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Adoption Pay (SAP) and Shared Parental Pay (ShPP) are marked as non arrestable.