Bringing in money from a job can be a real buzz – but you may be wondering why the government gets a bite of your hard-earned cash. And what’s the deal with PAYE? Don’t sweat it. Read on to get those payslip deductions explained.
A payslip is a statement that explains how you’ve been paid. Whether your employer pays you in cash or by bank transfer, they must give you a payslip each time. They can do this by post, email, in person or online.
What’s on them varies, but as a minimum, payslips will mention:
So, what should you do with your payslip? First, check the info on it is correct, and that the money arrives in your bank account or pay packet. Tell your employer ASAP if anything looks wrong so they can sort it out.
Payslips are a record of your tax, national insurance, pension savings and more. That stuff gets more important over time, so keep hold of the paperwork.
Gross pay is how much you earn before tax, national insurance and other deductions (there’s more about that below). Net pay is the magic number – it’s your take-home pay.
For example, if your gross pay is £375 a week, you’ll take home around £325. The missing bit is for tax and national insurance. In the real world, you might take home more or less depending if you make student loan repayments or pay into a workplace pension.
Tax is money we give to the government. It’s like a community savings pot, and it pays for things we all benefit from, such as schools, roads and the NHS. Some of the cash is set aside for anyone who needs extra support, in the form of benefits.
The main tax you’ll meet is income tax. This is a tax on wages, as well as some state and workplace benefits (such as sick pay).
Luckily, we all get a personal allowance. That’s how much we can earn without paying tax each tax year. The current allowance is £12,500. If you don’t earn that much in the year, you won’t pay tax.
Once you’ve used up your allowance, you pay 20% tax on the next £12,501 - £50,000 you make (unless you’re in Scotland, where the bands are different to the rest of the UK. The same can be said for tax bands in the Republic of Ireland). Earn more than that and you’ll pay a higher rate on the next chunk, and so on.
Like income tax, NI is docked from your wages above a threshold. The government uses this to pay for pensions, the NHS, and some benefits and allowances.
It’s important to build up your NI contributions over your working life, as it can affect your access to a state pension later on. You can check how much you’ve got on the government’s National Insurance records.
PAYE is pronounced with the letters spelled out (P-A-Y-E). It stands for Pay As You Earn, and it makes paying income tax and national insurance less hassle. Instead of you working out how much you owe, your employer uses your tax code to calculate it for you.
A tax code is a string of letters and/or numbers – 1250L, for instance. The code tells your employer how much to take off your wages to send to the tax office. They then pay you the rest.
Check out the accompanying video for this article and discover the five things you need to know about payday.