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How To Make Sense of Your Payslip

25th November 2019

Whether you receive them in paper-form or electronically, you might not be paying much attention to your payslips. They contain so much information in a condensed format that it’s easy to get confused and simply ignore them. However, taking some time to consider your payslip is important – you want to know that you’re receiving the correct amount for all your hard work, and paying the right amount of tax. This short guide tells you what each section and piece of terminology on your payslip means.

 

Essential Information 

Gross Pay – This is the basic amount of earnings you receive before any deductions (such as tax, or student loan). Sometimes employers detail what else goes into gross pay if applicable – like commissions, bonuses, overtime, sick pay, and maternity/paternity pay.   

Net Pay – This is the amount of earnings you receive after deductions, and will be the amount you actually see in your bank account. 

Deductions – These are amounts taken away from your gross pay to arrive at your net pay. There are two types of deductions – variable and fixed. 

Variable deductions can change from month to month, and include things like Income Tax and National Insurance (these amounts vary based on what you earn). Fixed deductions remain the same regardless of how much you earn, and include things like Railway Ticket Loans and other repayments for workplace benefits.

 

Additional Information 

Personal Info – Alongside your name, your payslip might include your address and payroll number (this is just a number the payroll department uses to identify you without having to rely on your name). 

Tax Code – Your tax code is used to calculate how much income tax or pension should be deducted from your earnings. The code reflects how much tax-free income you can earn in the tax year (which runs from 6th April to the following 5th April each year in the UK). To check if your tax code is correct, check on the government’s online Income Tax Checker

National Insurance Number – This number identifies you for another tax – National Insurance. As opposed to Income Tax, which funds national services like the NHS, National Insurance contributions go towards State benefits like the State Pension or Carer’s Allowance. This number doesn’t change, and you should have it on a National Insurance Numbercard. 

 

Acronyms 

Payslips are packed with acronyms to save space. The most common are: 

ET – Earnings Threshold – The amount of earnings below which you don’t have to pay income tax.

LEL – Lower Earnings Limit – The amount of earnings below which you don’t have to pay National Insurance Contributions. 

NIC – National Insurance Contributions – Tax paid towards state benefits, such as the State Pension. 

PAYE Pay As You Earn – A scheme by which your employer can take income tax directly out of your gross pay. 

PP – Personal Pension – These are contributions you make into your pension, different from the State Pension. 

SEE – Small Earnings Exception – If you earn less than a certain amount, you are exempt from paying National Insurance Contributions. 

YTD –  Year to Date – The start of the Tax Year until the present. 

With this short guide on how to make sense of your payslip, you’ll be better able to keep track of your earnings and keep your finances in order. 

 

At IMC, our expert financial advisors can help you to manage and grow your finances. Whether you need advice on pension planning, investments, mortgages, or life insurance, get in contact with us and see how we can help. 

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