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For firms that run payroll

A UK payroll engagement letter that says who moves the money

Payroll is the engagement where a mistake reaches someone other than the client: an employee paid wrongly, a payment to the tax authority made late. The letter decides whose mistake it was.

A payroll engagement letter sets the terms on which a firm runs a client's payroll: the cut-off for changes, approval before every pay run, who moves the money, and the fact that the liability stays with the employer. Firms send it before the first run. The template below covers each of those clauses, free in Word and PDF.

Last reviewed against 7 primary sources.

Free download

Payroll engagement letter

The full letter in Word and PDF, written for the United Kingdom, with the cut-off, approval and funding clauses.

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Use the free engagement letter generator

Type in your firm, the client, the scope and the fee, and it writes a complete engagement letter for the United Kingdom, ready to print or save as a PDF. Nothing you type is stored.

Next step: send it to the client through FirmHello, where it stays on their record beside everything else they send you.

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Most payroll disputes are about timing. A pay change arrives the morning of the run, a new starter is mentioned after the fact, a leaver's final payment is agreed on the phone. None of it is anyone's bad faith; all of it is avoidable with a cut-off written down in advance.

The other thing the letter must be honest about is liability. Running the payroll does not make you the employer. PAYE, National Insurance and automatic enrolment duties stay with the employer, whoever runs the payroll. The letter should say so, and make the client responsible for funding the payroll by a stated time.

What a payroll letter has to pin down

Five clauses. Each one is the answer to a phone call you would otherwise take on payday.

  1. 1

    The cut-off, and what misses it

    Hours, starters, leavers and pay changes by a stated time before each payday. Anything later goes into the next run, or is processed as an extra run at an extra fee.

  2. 2

    Approval before every run

    Send a summary before each pay run and finalise nothing until the client approves it. The approval is the client confirming the figures, and it is the record you will want if one is wrong.

  3. 3

    Who moves the money

    Say who pays net wages and who makes PAYE and National Insurance payments to HMRC by the 22nd of the month, and by when the funds must be available. PAYE, National Insurance and automatic enrolment duties stay with the employer, whoever runs the payroll.

  4. 4

    Pensions and the year end

    Name what you calculate and what you file: automatic enrolment pension contributions, and P60s by 31 May and, for benefits that are not payrolled, P11Ds by 6 July. Deadlines the client has never heard of are the ones that get missed.

  5. 5

    Worker status is the client's decision

    Whether someone is an employee or a contractor, and what they are entitled to under employment law, is a question for the client and their advisers. The letter should say you process the payroll on the basis they give you.

The payroll engagement letter

Written for United Kingdom. The downloads are the same text, as a Word document to edit and a PDF to put on your letterhead.

[Firm letterhead]

[Date]

[Client name]
[Client address]

Dear [Client contact],

The engagement

We will process the payroll of [Client name] on a [weekly / fortnightly / monthly] basis for approximately [number] employees, beginning [date]. For each pay run we will calculate gross pay, deductions and net pay, provide payslips, and prepare Full Payment Submissions on or before each payday and Employer Payment Summaries under Real Time Information. At the year end we will prepare P60s by 31 May and, for benefits that are not payrolled, P11Ds by 6 July.

Changes and approval

You will send us hours, new employees, leavers and any change to pay or deductions by [time] on [day] before each payday. Changes received after that go into the following pay run, unless you ask for an additional run, which is charged at [rate].

Before each pay run we will send you a summary for approval. We will not finalise the payroll until you have approved it, and your approval confirms that the figures are correct.

Payments

You are responsible for paying net wages to employees and for making PAYE and National Insurance payments to HMRC by the 22nd of the month, [unless you instruct us to initiate those payments from your account, in which case you will ensure the funds are available by [time] on [day]]. We will calculate automatic enrolment pension contributions; paying them on time remains your responsibility.

Your responsibilities

You remain the employer and are legally responsible for withholding and paying the amounts due on time. You are responsible for the accuracy and completeness of the information you give us, including each worker's status as an employee or contractor, their rates of pay and their entitlements under employment law. We will rely on that information without verifying it.

When an employee leaves, you will tell us their last day and any final payments by [date], and we will prepare the P45. You will provide HMRC agent authorisation for your PAYE scheme.

What is not included

This engagement does not include employment law advice, deciding whether a worker is an employee or a contractor, benefits administration, bookkeeping, or dealing with any inspection, audit or enquiry by HMRC or any other authority. We will agree any of these separately.

Fees

Our fee is [amount] in pounds sterling per pay run, invoiced [monthly], payable within [number] days. Year-end work and additional pay runs are charged at [rate] and agreed with you first.

Ending the engagement

Either of us may end this engagement on [number] days' written notice. We will complete the pay runs due in that period and provide your payroll records in a usable format.

Confidentiality and your employees' data

Payroll records contain your employees' personal information. We hold and process it on your behalf in accordance with the UK GDPR, only for the purpose of running your payroll, and retain it for [number] years.

Agreement

Please sign and return a copy of this letter.

Yours sincerely,
[Name], [Firm name]

Agreed for [Client name]:

Signature ______________________ Date ____________

Before you use this

Supplied as-is, with no guarantee. These templates are general information, not legal advice, and not a substitute for it. Have your own legal adviser review and adapt one to your practice and your jurisdiction before you put it in front of a client. FirmHello accepts no responsibility or liability for any use made of them.

UK payroll terms for the changes coming in 2027

From 6 April 2027 company cars, car fuel, vans, van fuel and employer-provided medical benefits must be reported through payroll, with most other benefits following from April 2028. A letter covering P11Ds should say how the service and fee change.

Employers keep payroll records for three years from the end of the tax year they relate to, including pay, deductions, HMRC reports and payments, and tax code notices. Say who holds them when you stop.

Starters without a P45

A new employee without a P45 completes HMRC's starter checklist, the form that replaced the P46. Say who collects it. The right-to-work check, which the employer must make before employment starts, is not part of running the payroll.

Re-enrolment every three years

The Pensions Regulator requires employers to put certain staff who have left the pension scheme back into it every three years, and to complete a re-declaration of compliance even if nobody needs re-enrolling. Say whether that sits inside the fee.

Class 1A in July

Class 1A National Insurance on benefits is reported by 6 July and paid by 22 July, or 19 July by cheque. If you calculate it, the letter should say when the client hears the figure and who makes the payment.

S and C tax codes

A code beginning with S means income is taxed at Scottish rates, and C at Welsh rates. The codes come from HMRC, so the letter should say you apply them as notified and do not decide where an employee lives.

Where payroll engagements go wrong

The change on the morning of the run

A pay rise agreed on the phone, mentioned after the payroll is final. A cut-off turns that from your error into a correction in the next run.

The account that was short

Payments bounce because the client funded the account a day late, and the late-payment penalty arrives addressed to them. The letter should have said so before it happened.

The contractor who was an employee

A worker is paid gross for a year and the authorities disagree with the arrangement. The letter should say status was the client's determination, not yours.

Other engagement letters

Bookkeeping Bookkeeping Template and samples Templates Accounting Accounting

Questions about payroll engagement letters

If we run the payroll, are we liable for late payments?

Generally not for the tax itself, which stays with the employer. You are responsible for doing the work you agreed to, on time and with care, which is why the letter should set out exactly what that work is and when the client has to fund it.

Do I need to be registered to run payroll for clients?

A payroll bureau is an accountancy service provider under the Money Laundering Regulations 2017 and needs anti-money laundering supervision. HMRC's tax adviser registration also reaches providers who only run payroll, from November 2026.

Should each pay run be approved in writing?

Yes, in some recorded form. An approval in your portal against the exact summary the client saw is the strongest version; an email reply is weaker but far better than nothing.

Can one letter cover payroll and bookkeeping?

It can, with a separate schedule for each service. The payroll schedule needs its own cut-off and funding clauses, which do not belong in a bookkeeping letter.

Sources

The primary sources this page is written against, last read against it on . Check them before relying on a detail; rules and thresholds change.

  1. GOV.UK Mandatory payrolling of benefits
  2. GOV.UK Payroll records kept 3 years from end of tax year
  3. GOV.UK Starter checklist (previously P46) for employees without a P45
  4. GOV.UK Employers must check right to work before employment
  5. The Pensions Regulator Re-enrolment every three years
  6. GOV.UK P11D and Class 1A reported by 6 July
  7. GOV.UK Tax code prefix S = Scottish rates, C = Welsh rates

What changed

  • Added an editable Word (.docx) copy of the letter beside the PDF.
  • Added the section on what UK law adds, written from primary sources, and reviewed the shared letter text for wording that only US law supports.

The letter is the easy half

Sending it, getting it back signed, and finding it again in two years is the half that eats the week. That is what the portal is for.

No card and no sales call. If you would rather tell us about your firm first, use the longer form.