Most of us get a payslip every month and don’t really spend much time looking at it. Usually, we simply look at the net amount, that’s the amount after deductions, and then get on with our day. However, it can be a good idea to take some time to understand your payslip, as you can check it’s accurate and know exactly where your money is going. We all have deductions from our wages once we turn 16, so our ‘Payslips Explained’ guide aims to tell you a bit more about what these deductions mean.
What should be on a payslip?
By law, whenever employees are paid, they should get a payslip. As an absolute minimum, this must include the amounts of:
- Gross pay – this is the total amount you’ve been paid before deductions
- All your deductions
- Net pay – this is your take home pay, and the amount you will see credited to your bank account or as a cash payment
While this sounds simple, sometimes it can be difficult to tell where your money is going, so some of the basics of payslips are explained below.
Tax
Everyone has a personal allowance, which is the amount of income you can make before you pay income tax. In 2019/20, the amount is £12,500, so if you earn more than this, you’ll see a deduction for PAYE or pay as you earn tax on your payslip.
The amount of tax you pay is calculated by payroll based on your tax code. In the UK, the basic rate for tax is 20% if you earn up to £50,000, rising to 40% if you earn over £50,000. So, if your salary was £32,000, you’d deduct the personal allowance of £12,500, so £19,500 of your salary would be taxable.
If you think you’re on the wrong tax code or might have paid too much in a previous tax year, contact the HMRC to find out more.
The tax that’s deducted from your pay goes towards the government, so it pays for NHS hospitals, state schools and public projects such as roads and railways.
National Insurance
Tax and National Insurance are two amounts that people often check on their payslip, but many don’t really understand how much they should be paying.
National Insurance is paid from the age of 16 and once you earn over £166 a week. The amount of NI you pay will depend on how much you’ve earned, as well as a number of other factors. If you’re unsure, it’s worth asking your payroll department if you can have your payslip explained to you.
You receive your National Insurance NI number around the date of your 16th birthday, and this allows the government to keep track of your National Insurance contributions. You can log into the HMRC website and see your contributions so far. You can also find lots of online calculators where you can simply put in the details of your gross pay and it’ll work out your NI deductions.
Your National Insurance contribution goes towards benefits, state pensions, the NHS and more.
Student loans
An increasing number of people now have a student loan to pay back for their post-secondary education. These loans are taken out to cover tuition fees and everyday expenses while you study and have been increasing in recent years due to the higher cost of living and fees increases. The average graduate now leaves a three-year degree with nearly £50,000 worth of debt, but the good news is that you only start paying back once you hit a certain threshold.
The threshold for payments has recently increased from £21,000 to £25,000, and the amount you pay varies depending on your salary. It’s worked out as 9% of your salary over the threshold, so as your salary hopefully increases over the years, you start to gradually pay back more.
Pension contributions
It’s worth setting up a private pension as soon as possible, as the more you pay in now, the more comfortable your retirement. When you set up a pension, you’ll usually agree to fixed deductions each month, which will be paid to your pension fund. You can then access these funds when you reach a minimum age, which is usually 55, but can vary depending on the product.
You may have also heard about the workplace pension through TV and radio adverts. These are simply pensions that are arranged by your workplace, with a certain percentage paid from your salary each month. Some of these schemes attract tax relief, so they can be a good way of saving for the future. If you want to find out more, contact your payroll department who’ll be able to tell you more about your workplace’s scheme.
Benefits
Many workplaces offer perks such as company cars or private health insurance at a reduced rate, and if you’re taking part in one of these schemes, then the deductions should be shown on your payslip.
Checking your payslip
It’s always worth spending a little time checking your payslip each month, both the fixed deductions and the variable deductions that may change each month, such as tax and NI. If you think there has been a mistake in your pay, then most companies have a payroll department, and if you contact them with your payroll number, they’ll be able to check things for you.
If you’re looking for financial advice on a wide range of subjects, such as having your payslip explained, contact the accountants at The Financial Management Centre in Farnborough on 01270 350 125 and we’ll be happy to help.
Posted on Tuesday, August 6th, 2019 at 9:23 am in Latest News.
