Understanding a payslip

 If you have never had a job before, it is quite possible that you have never seen a payslip. This guide provides a general insight into what a  payslip is and what information it contains. You may find it helpful if you are new to the world of work as it takes you through the various  elements of the payslip.

 Above is an example of a standard payslip that you would receive from your employer. Sometimes this will be received as a physical copy  however it is more common for it to be sent to you electronically via email. You will usually receive this within a day or two either side of  your company’s pay day, but this can vary depending on the company. Most employers pay their employees towards the end of the month  but again, this can vary depending on the business. 

 So, let’s break it down and look at each section of the payslip.

 1. Company details

 In this section, the company that you are working for will be listed as well as the company’s full address. On occasions where the payslip is  sent via email or post to the employee, the employee’s address will also be included. 


2. Employee no.

 This is your employee number. An employee number is a unique number that you are given when starting at a company. It is unique to you  and no one else will have that number. This allows you to be easily identified by payroll to ensure that you are paid each month. 


 3. Employee Name

 This is quite straight forward. This will just be your full name to ensure that the correct pay is going to the correct person.


 4. Date

 This will be the end of the month of which you are being paid for, not the date of payment. In the example, you can see that the date states  31/03/21, this does not mean that the payment was made on this date, instead, it shows that the payment was made on the company’s  payday (let’s just assume the 25th March) but the payment will cover the employee working from 28th February to the 31st March. 


 5. Insurance No.

 This is your National Insurance number. This is a unique number given to you 3 months before your 16th birthday. This allows you to work  and will be required by any employer you work for throughout your life. Your National Insurance number will never change throughout your  lifetime, so keep a note of it as it is very important! This number is needed so that National Insurance deductions can be made from your  pay, which we will look at later in this article.  


 6. Payments

 Now we are getting to the financial side of the payslip. On the left side of your payslip, you will have your GROSS pay. This means the money  you receive for your work before any deductions have been made. As you can see in the example, it breaks it down into units, rate and  amount. Units can vary depending on how you are paid as if you are paid hourly, this would show the number of hours that you have  worked, and the rate would be how much you earn for each hour that you work. The amount is then the total amount payable, which would  be the units multiplied by the rate. 

 For many jobs now, employees are paid a set amount per annum (each year) and so the unit section becomes irrelevant as they are paid a  set payment. This is what is shown in the example payslip above as the unit is 1 and the rate is the standard set payment to be received. 


 7. This period section

 The section entitled ‘This period’ is an important section of your payslip as this shows you the breakdown of your salary for the current  month. It shows your GROSS pay as well as the various deductions made.

*The above example is a generalized payslip and includes the deductions that everyone is likely to face in their working life, dependant on salary.  Please note that your payslip may look different and can include additional deductions to your gross pay if you have a student loan to pay back for example, or if the company you are employed with has enrolled you in a scheme that they are partnered with.

     7.1 Period pay

 This is the GROSS pay that we looked at previously that was seen under the ‘payments’ section of the payslip. It is the set amount of money  you have earned before any deductions have been made. 

     7.2 PAYE tax

 This can be referred to as PAYE (Pay As You Earn) tax or just as tax on your payslip and it represents income tax. The amount of income tax  that you pay depends on how much you earn. 

  • You will not pay income tax on the first £12,570 that you earn in the tax year. 
  • This initial £12,570 is known as your personal allowance.
  • Anything above this amount is known as taxable earnings. 
  • For earnings of £1,048.01 - £4,189 per month, you will pay 20% Income Tax.
  • For earnings of £4,189.01 - £12,500 per month, you will pay 40% Income Tax.
  • For earnings over £12,500 per month, you will pay 45% Income Tax.

 Income tax is automatically deducted from your pay; it is not something that you personally have to pay for. 

     7.3 Nat Insurance

 This refers to National Insurance, another form of tax that is deducted from your GROSS pay. Similar to income tax, you need to earn over a  certain threshold to start paying it. 

  • You will not pay National Insurance payments on the first £1,048 that you earn each month. 
  • For amounts of £1,048.01 - £4,189 per month, you will pay 10% National Insurance.
  • For amounts over £4,189 per month, you will pay 2%. 

 Much like Income tax, National Insurance payments are automatically deducted from your pay; it is not something that you personally have  to pay for. 

     7.4 Pension EE and Pension ER

 Pension EE and Pension ER are both pension* payments. EE refers to payments that are made by the employee. This tends to be a  proportion of your salary that is placed directly into a pension plan set up by your employer. The average proportion paid by the employee  is usually between 3% and 5% of GROSS pay. ER therefore refers to the pension payments made into the same plan, but this time, by your  employer. The minimum total pension contribution is 8%, therefore depending on what the employee is paying into their pension, the  employer will top it up to reach at least 8% of the employee’s GROSS pay. The contributions from your employer are not a deduction of your  pay. 

 *The type of pension plan will depend on your employer as there are many different types and providers, however all pensions have the same  purpose of providing financial aid in retirement. For more information, check out our pensions articles. 


 8. Year to date

 This section is similar to the period section as it contains the same components. The only difference between them is that the year to date  shows the payments and deductions made for the whole year so far, whereas the period section only contains the information for the  current month. 


 9. Pay method

 This is simply the method that you have selected to be paid via. In most cases, it will be via a bank transfer, unless it is necessary to be paid  in cash. 


 10. Period No. and Pay period

 Within each company, you have what is known as periods. This is simply the months of the year. However, they are not numbered from 1-12  to match January to December. Sometimes they are set to the financial year (1 being April and 12 being March) but also it isn’t uncommon  for month/ period 1 to be the month that the company was set up so it really can vary between different businesses. You can largely ignore  this part of the payslip as it is used mainly by the finance/ payroll team pf your company. 

 The pay period is just the time scale to define the length of a period. This is usually a month but could be weekly.


 11. Tax code

 Your tax code is not a unique number as many other employees will have the same tax code. This number just categorizes you based on the  amount of tax you should be paying. 


 12. NET Pay

This is the most important part of the payslip as this is your final payment that you receive in your bank account from your employer. It is the amount of earnings that you receive once all deductions have been taken. 

So, that’s a payslip! Many people tend to just look at the NET Pay section to see how much they will receive but it is good to have a look at the full breakdown to see if you are paying the correct amounts of tax or if you are due any rebates (refund) for over charging. 


For more information or enquiries, please contact us at info@centurionfinance.co.uk

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