What is a payroll number? The complete guide for your business

Getting to grips with the different features and processes of payroll is an important step for small business owners.

If you have multiple employees to juggle, payroll administration can get confusing. Assigning payroll numbers to each employee can help to make the process easier.

Payroll numbers are a unique reference number used by UK businesses to keep track of and identify individual employees within their payroll system.

Payroll numbers form a key part of overall payroll management, and in this article we’ll take a look at what they are, why you need them, and how they’re used.

What is a payroll number?

A payroll number is a unique sequence of numbers and letters that an employer can assign to an individual employee in order to identify each employee from a payroll perspective.

Payroll numbers help employers to keep track of payroll and add an added layer of security, ensuring you are paying your employees correctly and keeping their personal information and data safe by removing the need to keep masses of data on multiple databases.

While they aren’t a legal requirement, many companies both big and small choose to use payroll numbers in order to minimise the risk of error during payroll, and to make identifying and paying employees easier.

How are payroll numbers created?

Payroll numbers are either created manually by whoever is in charge of payroll within your company, or generated automatically by your payroll system.

If you have a payroll system that generates payroll numbers for you then you may as well save time and effort and use these numbers, rather than creating your own.

If you decide to generate your payroll numbers yourself for your employees, make sure that you stick to a consistent format for each number.

For example, you may want to distinguish between departments by adding abbreviations to the numbers, such as MAR for employees in your marketing team. Whatever you choose, make sure to stick to the same format for every employee.

Many of the best payroll systems will generate payroll numbers for you in a consistent format, but be sure to check this before you sign up to your chosen provider as it’s not a guaranteed feature.

How to find a payroll number

If you’re looking for a payroll number, either as an employer or as an employee, you can usually find it easily on a payslip.

The number is usually displayed at the top of the payslip alongside the employee name.

If your payroll system provider generates your payroll numbers, you’ll also be able to find them on the platform, usually on individual employees records.

The difference between payroll numbers and PAYE numbers

While a payroll number helps to identify an employee within your payroll system, it’s not the only number they will be assigned as part of the payroll calculation process.

If your business is set up to use PAYE (Pay As You Earn) then each employee will also be given a PAYE number from HMRC.

These numbers are generated and assigned by HMRC and are used for the collection of tax and national insurance contributions.

A PAYE reference number will usually consist of letters and numbers, with 3 digits representing the HMRC office dealing with your company, followed by a unique digit combination.

A PAYE number usually looks something like this: 083/TD12458

Employees are able to use their PAYE number to see how much tax they have paid during their time at the company, whilst employers use PAYE numbers when completing end-of-year PAYE tax returns.

How do payroll numbers protect employee data?

As an employer, no matter how big or small your business is, you have a responsibility to protect your employees’ sensitive data and ensure you are GDPR compliant. Payroll numbers can play a big part in that, helping to keep your employees and their personal information anonymous.

All of an employee’s relevant information can be linked to their payroll number – everything from their name and personal contact details to their salary, working hours, and any company benefits they receive.

Payroll numbers therefore allow you to keep track of all of this information without the need to include excess and confidential information about staff within multiple databases and documents. Payroll numbers allow you to keep everything in one place as well as adding an extra layer of security and confidentiality to employee records.

It also helps to prevent any errors or mix ups too, ensuring employees don’t accidentally receive information or payment that’s meant for someone else.

For example, if you have employees with similar names, like George Smith and Georgia Smith, payroll numbers help to ensure records aren’t mixed up.

Similarly, if an employee changes their name during their employment with you, a payroll number ensures their records remain consistent and accurate.

Changing and re-assigning payroll numbers

While assigning payroll numbers is a relatively simple process that will make your overall payroll systems more efficient, there are important factors to note when it comes to changing and re-assigning payroll numbers.

Re-assigning payroll numbers

If an employee leaves your company and is then later re-hired, you must assign them a new payroll number.

This is because payroll numbers are technically issued for each employment, not each employee. They cannot use the same number they were using during their previous employment with your company.

This is also the case when an employee starts a second job within the same company, for example a promotion or role switch to a new department – they will need a new payroll number for the new job.

Changing payroll numbers

While it’s best to avoid changing your payroll numbers and to choose a system and stick to it, occasionally a situation may arise where you need to change an employee’s payroll number (for example, if you use a code for each department, and the employee has moved departments).

Any payroll number changes should be reported straight away to HMRC, in order to ensure there are no duplicate records and HMRC doesn’t demand payment for both numbers.

The good news is that most payroll providers will let you transfer your existing payroll information over, including payroll numbers, meaning if you want to change providers, you can use your existing payroll numbers and format.

Read more: do you have employees based overseas? If so, don’t miss our guide to using shadow payroll to stay compliant with local tax laws.

Conclusion

While payroll numbers may not be a legal requirement for employees, like paying the national living wage for example, most businesses opt to use them in order to keep track of payroll and employee data.

Payroll numbers will not only make the lives of those responsible for your company’s payroll much easier, but they will also ensure your company is compliant with the strictest GDPR policies by keeping your employee data safe and secure.