Struggling to understand all the information on your payslip? We talk you through all the different terms and offer tips to help you make sure you’re being paid correctly.
- What does your payslip tell you?
- Payslip jargon buster – what does it all mean?
- Filing away your payslips
What does your payslip tell you?
Your payslip contains lots of information about the income you earn, and anything that is taken off this income before you get it (deductions). It also provides you with a running total of your earnings for the year along with the total Income Tax and National Insurance you’ve paid for the year.
Depending on how you’re paid, your payslip will show your monthly salary for the pay period (for example, monthly) and any overtime you’ve worked. If you earn an hourly rate, it will show that together with the total earned for the period.
Payslip jargon buster – what does it all mean?
- Deductions – this shows everything taken, or deducted, from your earnings before you get paid. Deductions include Income Tax, National Insurance contributions, any student loan repayments, and any pension contributions if you pay into a pension scheme.
- Tax code – this little code is extremely important. It tells your employer the rate at which you should be taxed. The numbers show how much income you can earn in a year before you need to pay tax – just add a zero to the numbers and it will give you the figure. For example, Tax code 1100L means you can earn £11,000 a year before paying any Income Tax. The most common letter is L, which just means your tax situation is standard. If you have different letters in your tax code, check out their meaning below.
- Payment method – most employers will pay your earnings directly into your bank account. This is done through a system called Banker’s Automated Clearing Services, or BACS for short.
- Gross pay and net pay – your payslip will show both your gross pay and your net pay. Your gross pay is what you’ve earned before any deductions have been taken off. Your net pay is what you actually receive into your bank account once all the deductions have been taken off.
Filing away your payslips
It’s important to keep your payslips in a safe place – here are our top three reasons why:
1. Security – payslips contain a lot of personal information about you and your earnings, including your National Insurance number. Keep them safe to help avoid them being used for identity fraud.
2. Record keeping – it’s a good idea to keep a record of all your earnings and tax payments just in case there’s a problem and you need to check old details.
3. Evidence of earnings – for some financial products, such as loans, you may be asked to prove your earnings by showing your last three payslips.
This article is provided by the Money Advice Service.