Payslip fraud can expose UK employers to unpaid tax, penalties and serious compliance risks. Use this checklist to review payroll suppliers, payslips, deductions, HMRC submissions and payroll records.
HMRC updated its guidance on outsourced labour payroll fraud, sometimes called payslip fraud, on 4 February 2026. The guidance explains how workers, employers and employment agencies can recognise warning signs and report concerns.
This type of fraud can occur when a legitimate business transfers its workers or payroll responsibilities to another business that does not declare or pay the correct Income Tax, National Insurance contributions or VAT to HMRC.
The employer may not initially know that anything is wrong. However, businesses that outsource labour or payroll must understand who is paying their workers, what service is being supplied and whether the arrangement presents any warning signs.
This guide explains what payslip fraud means, the checks UK employers should complete and what to do when payroll figures do not agree.
In this guide
• What payslip fraud means
• What a UK payslip must include
• Eight payroll checks for employers
• Warning signs that require investigation
• What employees should check
• What to do when payroll figures differ
What is payslip fraud?
The term “payslip fraud” is often used to describe outsourced labour payroll fraud. This happens when workers receive payslips that appear to show the correct deductions, but the business responsible for payroll does not properly declare or pay those amounts to HMRC.
Workers or employers may notice:
• Tax or National Insurance deductions that do not appear correctly in HMRC records
• Payslips containing incorrect pay, tax codes or deductions
• Workers being moved unexpectedly to another payroll or umbrella company
• Workers losing access to their payslips or payroll portal
• Unusual arrangements involving third-party payments
• Payroll or labour costs that appear too good to be true
An ordinary payroll mistake is not automatically fraud. However, unexplained discrepancies, repeated errors and unusual supplier arrangements should be investigated promptly.
What must a UK payslip include?
Employers must provide eligible employees and workers with a payslip on or before payday. It may be provided as a printed document or electronically.
A payslip must normally show:
• Gross pay before deductions
• Net pay after deductions
• Variable deductions, including Income Tax and employee National Insurance
• Fixed deductions or an explanation of those deductions in a separate statement
• The number of hours worked when pay varies according to time worked
• The amount and method of payment where different payment methods are used
Employers can review the official GOV.UK guidance on payslips and employee rights.
Eight payroll checks for UK employers
1. Confirm who is responsible for payroll
Start by confirming which business is legally responsible for employing and paying each worker. You should understand whether your supplier is providing labour, payroll services or both.
If payroll or labour has been outsourced, confirm:
• The full legal name and registration details of the supplier
• What service the supplier is providing
• Who holds the employment contracts
• Who calculates and submits the payroll
• Who pays the workers and HMRC
Keep written contracts, invoices and evidence of the checks completed. Outsourcing payroll does not remove the need to understand the arrangement.
2. Provide a payslip for every pay period
Every eligible employee or worker should receive a payslip on or before the date they are paid.
Check that:
• Payslips are produced for every pay period
• Employees receive them securely and on time
• Employees can access electronic payslips when required
• Former employees retain access to relevant documents where appropriate
Repeated missing or late payslips can indicate weak payroll controls and should not be ignored.
3. Check each employee’s details
Review the information used to process each employee’s pay, including:
• Full name
• National Insurance number where available
• Payroll identification number
• Tax code
• Pay rate or salary
• Hours worked where relevant
• Pension information
• Student or postgraduate loan deductions where applicable
Incorrect employee information can produce inaccurate deductions, duplicated employment records and unexpected tax bills.
4. Reconcile pay and deductions
Before finalising payroll, compare the payroll report, payslips, bank payment file and accounting records.
The reconciliation should cover:
• Gross pay
• Income Tax
• Employee National Insurance
• Employer National Insurance
• Employee and employer pension contributions
• Student and postgraduate loan deductions
• Statutory payments
• Net pay transferred to employees
Unexplained differences should be investigated before payments and payroll submissions are approved.
5. Submit the Full Payment Submission on time
Employers must normally send a Full Payment Submission to HMRC on or before the date employees are paid. The submission reports employee pay and deductions.
Before submitting the FPS, check that:
• The payment date is correct
• Pay and deduction figures agree with the final payroll
• Year-to-date totals are reasonable
• New starters and leavers have been reported correctly
• Any late reporting reason is used only when appropriate
Keep the submission confirmation and investigate rejected reports or software warnings immediately.
6. Check the amounts owed to HMRC
Reconcile the payroll reports with the amounts shown in the employer’s HMRC account. Review PAYE liabilities regularly rather than waiting until the end of the tax year.
Check:
• Income Tax and National Insurance liabilities
• Employment Allowance where claimed
• Statutory payment recoveries
• Previous payments and outstanding balances
• Interest, penalties or unexpected adjustments
Unexpected liabilities, duplicated amounts or missing payments should be reviewed promptly with the payroll provider or accountant.
7. Keep complete payroll records
Employers must maintain records that demonstrate that payroll has been calculated and reported accurately.
These records normally include:
• Employee pay and deduction records
• Payslips and payroll reports
• Reports submitted to HMRC
• Payments made to HMRC
• Tax code notices
• Employee leave and sickness records
• Taxable expenses and benefits
• Relevant payroll supplier contracts and invoices
PAYE records must generally be kept for three years from the end of the tax year to which they relate. Other employment, pension, minimum wage or business records may have different retention requirements.
Read HMRC’s PAYE record-keeping guidance.
8. Take employee questions seriously
Employees are often the first people to notice that their payslip, bank payment or HMRC record does not look correct.
Investigate promptly if an employee reports:
• Incorrect pay or hours
• An unfamiliar employer or payroll company name
• An unexpected tax code
• Missing or unexplained deductions
• Missing payslips or loss of access to the payroll portal
• Differences between the payslip and HMRC information
Record the question, investigate the cause and provide the employee with a clear explanation of any correction made.
Warning signs employers should investigate
Warning signs do not automatically prove fraud. However, they should lead to further checks, particularly where labour or payroll has been outsourced.
• Payroll savings that appear too good to be true
• An unsolicited offer to take over workers or payroll
• A supplier with little trading history or no clear business presence
• A payroll company with a name similar to another business in the arrangement
• Payments requested through an unrelated third party
• Offers to refund administration costs or provide unusual kickbacks
• Workers being transferred without a clear explanation
• A supplier refusing to explain who employs and pays the workers
• Repeated missing payslips or payroll reports
• Differences between payroll reports, bank payments and HMRC liabilities
If concerns remain after speaking to the supplier, obtain independent professional advice and consider whether the arrangement should continue.
What should employees check?
Employees should review each payslip rather than assuming that every figure is correct.
Check:
• The employer or payroll company name
• Gross pay and hours worked
• Tax code
• Income Tax and National Insurance deductions
• Pension contributions
• Student or postgraduate loan deductions where applicable
• Net pay received in the bank
• Information shown in the HMRC app or personal tax account
An employee who identifies a difference should first raise it with the employer or payroll department. Concerns about outsourced labour payroll fraud can also be reported to HMRC.
What should an employer do if there is a difference?
If a payslip, payroll report, bank payment or HMRC record does not agree:
• Stop and identify which figures are different
• Check the payroll inputs, reports and bank payment records
• Contact the payroll provider or accountant
• Correct the payroll records and HMRC submission where required
• Pay any outstanding amount to the employee or HMRC
• Provide a corrected payslip where necessary
• Explain the correction clearly to the employee
• Record what happened and how the issue was resolved
If the discrepancy indicates possible deliberate non-compliance, obtain professional advice and consider reporting the matter to HMRC.
Read HMRC’s guidance on checking for signs of outsourced labour payroll fraud and reporting suspected tax fraud.
How Number One Accounting can help
Number One Accounting supports UK businesses with accurate payroll processing, HMRC reporting and payroll record-keeping.
Depending on your requirements, our payroll support can include:
• Weekly, fortnightly or monthly payroll processing
• Employee payslips
• FPS and EPS submissions to HMRC
• PAYE liability reports
• Starter and leaver processing
• Statutory payment calculations
• Pension contribution information
• Payroll corrections and reconciliations
• Support with payroll and HMRC queries
The exact service depends on the payroll package selected and the circumstances of the business.
Frequently asked questions
When must an employer provide a payslip?
A payslip must normally be provided on or before payday. Employers may provide it on paper or electronically.
Can payslips be provided electronically?
Yes. Employers can provide electronic payslips, provided employees can receive and access them securely.
When must an FPS be submitted?
An employer must normally submit a Full Payment Submission to HMRC on or before the date employees are paid. Limited exceptions can apply in specific circumstances.
How long should employers keep PAYE records?
PAYE records must generally be retained for three years from the end of the tax year to which they relate. Other records may need to be retained for a different period.
Is every incorrect payslip evidence of fraud?
No. An incorrect payslip may result from an ordinary payroll error. The cause should still be investigated, the records corrected and the employee given an explanation.
Where can suspected payroll fraud be reported?
Concerns about outsourced labour payroll fraud, unpaid Income Tax, National Insurance or VAT can be reported to HMRC. A person making a report does not have to provide their personal details.
Need help managing payroll correctly?
Number One Accounting can help UK employers process payroll, submit accurate reports to HMRC and maintain reliable payroll records.
This article provides general information only and does not constitute personal accounting, payroll or legal advice. Individual circumstances and HMRC requirements may vary. Information reviewed on 20 September 2026.