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From time to time you may wish to pay your employees a set net amount rather than a gross amount. This means that as the employer, you are liable to pay the tax and NI liabilities for that pay item.
In Pento, you can add a Gross-up pay item to an employee where Pento will automatically calculate the tax and NI due on the specified net amount, and add it as a total gross amount to the payslip.
Please note - If the employee has Student Loan deductions or any other net deduction, the net figure will vary. The figure can also vary if the gross-up item is marked as pensionable.
NB. If you need to add a gross-up pay item, this needs to be done after all other payslip adjustments have been made, as the last step.
Adding a Gross-up pay item to an employee
To add a Gross-up pay item to an employee, you will need to follow the steps below:
- Navigate to Payrolls from the left sidebar
- Select the relevant payroll draft
- Search for the relevant employee
- Select Add pay item on the payslip preview
- Select Gross-up addition
- Add the pay item title as you wish it to be recorded on the payslip.
- Add the desired net amount i.e. the amount you want the employee to receive after tax and NI.
- Toggle this on if you want the pay item to be included in the pension calculation.
The summary will show you a breakdown of the desired net amount, the tax due and the NI due.
This is the total gross amount to be added to the payslip which is comprised of the desired net, the tax due and the NI due.
How the Gross-up is calculated
As tax can be cumulative, and both tax and NI are subject to certain thresholds, the Gross-up calculation should only be added to the payslip once all other gross additions and deductions have been added.
Once you are ready to add the pay item, the employee's current earnings will determine the amount of tax and NI that is due on the payment e.g. If the employee is a basic rate taxpayer and their pay prior to adding the gross-up exceeded the threshold for tax and NI, then the gross-up would be calculated using the basic rate thresholds.
For further guidance on the way gross-ups are calculated, you can refer to HMRC's guidance: