How To Read Your Monthly Payslip
29th June 2021
Every month there’s a document that gets filed away by tons of us, never to be seen again. Payslips.
Plenty of the population are guilty of just filing away our payslips on payday after checking the big bold number of how much will enter our bank accounts.
One day you may find yourself questioning the numbers you see. That’s not right is it? Why is my tax so high? Where is money even going? It’s your responsibility to check that the numbers in your payslip add up. After all, we’re each accountable for the amount of tax we pay, and nobody is going to do it for you. Getting over or underpaid can easily happen to all of us, so it’s important to be on top of your tax so you aren’t surprised with a huge tax bill at the end of the financial year.
Your right to a payslip
If you’re employed by a business, you’re likely on PAYE (Pay As You Earn) and entitled to a regular payslip whenever you’re paid. It doesn’t matter if you work 9-5 or work unpredictable shifts, you should still receive one. If you’re self-employed as a freelancer or independent contractor, this isn’t the case and you’ll have to fill out a tax return at the end of each year.
Nowadays, payslips come in several different forms. There are still the classic paper slips, but also those that are emailed or downloaded from an employee portal online. This is completely fine given that all the details are there.
It’s recommended to hold onto your payslips for as long as possible, or at the very least, either until you’ve been issued a P45/P60 from HMRC (Her Majesty’s Revenue and Customs) or 22 months after the tax year of your tax return. Your payslips act as proof of income or employment, which you may need when applying for a loan or form of credit, it’s also a reliable record of your pension contribution.
Your payslip is your way of knowing whether or not you’re getting paid what you’re owed, so it’s worth getting to grips with the different numbers and unfamiliar codes that may currently confuse you. These details are mostly a requirement, but some are more useful than others.
All UK payslips must show these details:
Your gross pay (the amount you’re paid before any deductions). This will be your salary or hourly rate and should factor in any overtime, tips or bonuses you’re being paid for
The amounts of any “variable” deductions that could change from payday to payday
The amounts of any “fixed” deductions that won’t change between paydays
Your net pay, or “take home” pay which is the amount you receive in your bank account
The amount and method of any part payment. For example, if your employer is paying you half to your bank account and half in cash, this should be detailed
The two variable deductions that most of us pay are tax and National Insurance. How they’re calculated depends on how much you earn, and on the allowances granted by the government each tax year. In both cases, you can earn a certain amount before you’re required to contribute (currently £12,500 in 2020/21). Then, your employer makes contributions on behalf of you based on your pay above this amount as a percentage of your salary. The more you earn, the more your contribution based on your salary band. You can find out more about your contributions and how they’re calculated on gov.uk.
You may also have pensions, student loans and court ordered deductions like child maintenance in your variable deductions which are paid as a percentage of your earnings.
Fixed deductions are usually if your employer has a benefits or rewards scheme that they pay for or contribute to on your behalf. You’ll see these benefits listed on your payslip, although they may be referred to by a particular code. These can include health insurance, dental cover, gym memberships and season ticket loans.
What else to look for
Different employers use different payslips, but there are a couple of other details worth looking out for, including:
Payroll number – the unique reference that your employer uses to identify you in their payroll system
Tax code - this is used to collect the right tax
Your National Insurance number
The date you’ll be paid
The tax period. As the financial year starts in April, if the tax period on your payslip is “1”, it’s for April and “2” is the code for May. If you get paid weekly, the tax period may be shown differently
Expenses. Any business expenses owed to you should be listed on your payslip if it’s being paid back to you
Details of how your gross income is calculated. This is especially important if your income is made up of more than your base salary, like commission, overtime or bonuses.
Pension details. If you pay towards a workplace pension - which you should be automatically enrolled for - you’ll see “ER pension”, which is what your employer has paid and “EE pension” which is your contributions
Student loan. If you make student loan repayments, this will be listed
Workplace benefits. Any benefits like health insurance or a company car will be listed
Here we’ve rounded up a few acronyms you may see on your payslip but might not know. Your own personal glossary to help you breakdown your pay:
BA - Bereavement Allowance. This is paid out to widowers, widows and surviving civil partners.
BACS - Bankers Automated Clearing Services. This is an electronic system that makes payments from your employer’s bank account to yours. This will usually be a Direct Debit.
CHB - Child Benefit. This is a benefit paid out to parents with children under the age of 16 or 20 if in approved education or training.
HMRC - Her Majesty’s Revenue and Customs. The UK's tax, payments and customs authority.
NIC - National Insurance Contributions. This is what is deducted from your pay for National Insurance, as well as tax.
SSP - Statutory Sick Pay. This is what’s paid out when you are too ill to work for four consecutive days or longer.
SMP, SPP, ShPP and SAP - Statutory Maternity Pay, Statutory Paternity Pay, Statutory Shared Parental Pay and Statutory Adoption Pay respectively. These are the various types of parental pay following the birth or adoption of a child.
What to do if something doesn’t look right
If something you see in your payslip doesn’t look right to you, or you don’t understand your payslip, don’t ignore it. It may be nothing, but it could also be something that lands you with an unwanted bill from HMRC. Certain changes in earnings like a payrise can cause you to pay too much or too little tax, so you’ll want to stay on top of it. Speaking to someone from your payroll department is ideal, but many businesses use external payroll providers so it may not be practical. A colleague from HR or your line manager are likely your best bet in this case.