There’s no denying the anticipation of payday, but receiving your payslip isn’t always as welcome. With so much information crammed onto such a small piece of paper, it can be difficult trying to get your head around all the figures and terminology.
Your payslip will usually contain details like your name and address, your payroll number, the date, the tax period, your tax code, your National Insurance number, your pay rate and payments, wages, bonuses, tips and commission. This information is usually straightforward and shouldn’t need much explanation.
If relevant, your payslip could also contain details like expenses, pension contributions, student loan deductions, court orders and child maintenance, sick pay, maternity, paternity and adoption pay, workplace benefits, any other deductions, a summary of the year to date and important messages from your employer. Again, this information is normally self-explanatory.
What your payslip must show is your gross pay, net pay, the amounts of any deductions that vary from payday to payday, the total amount of any fixed deductions, the amount and method of any part payment, and the number of hours worked if your pay varies based on the time worked. This is where things can get a little more complicated.
In this article, we’ll explain the difference between gross pay and net pay, go through some of the most common deductions you’re likely to see on your payslip and explain how your gross pay and net pay are calculated.
Often referred to as your “annual salary”, gross pay is the amount you’re paid before deductions, while net pay is also known as your “take-home pay”, as it’s the amount that’s left after deductions.
Your payslip will tell you what your gross pay is, how much has been deducted and what your net pay is — which is usually displayed in a larger font or in bold so that it stands out.
Read on to find out more about gross pay and net pay.
Your gross pay is the amount you’ve earned for a particular pay period, based on your salary. It includes all benefits and allowances, for example, overtime pay, health insurance and travel expenses.
Your gross pay doesn’t take into account any deductions or mandatory contributions and is usually the highest figure displayed on your payslip.
If, for example, your annual salary is £30,000 and you get paid monthly, your gross pay will be £2,500.
Your net pay is the amount you are paid after all taxes and mandatory and voluntary contributions have been deducted from your gross income.
Using the same example as above, if you receive a monthly salary of £2,500 but pay £291 in Income Tax and £204 in National Insurance contributions each month, your net pay will be £2,005.
As well as the mandatory payroll deductions that every employee has to pay, you may also see voluntary deductions on your payslip, depending on the choices you’ve made about savings and benefits.
Mandatory deductions
Some of the mandatory deductions your employer might make from your gross pay include the following:
Payroll taxes
If you earn over a certain amount, it’s likely you’ll have to pay Income Tax, which will be deducted from your earnings automatically. HM Revenue & Customs (HMRC) collects Income Tax on behalf of the government to fund public services like the NHS and welfare system, as well as using the money to invest in public projects, such as housing and roads.
The majority of people living in the UK get a Personal Allowance they don’t have to pay tax on. For the tax year 2022/23, most employed people in the UK will have the tax code ‘1257L’, which means you can earn up to £12,570 per year without paying tax on it. After this amount, a percentage of the extra income will be deducted as follows:
2022/23 Income Tax rates — England, Wales and Northern Ireland
| Earnings | Tax rate |
| Less than £12,570 | 0% |
| £12,571 to £50,270 | 20% |
| £50,271 to £150,000 | 40% (Personal Allowance drops by £1 for every £2 earned above £100,000) |
| More than £151,000 | 45% |
2022/23 Income Tax rates — Scotland
| Earnings | Tax rate |
| Less than £12,570 | 0% |
| £12,571 to £14,667 | 19% |
| £14,668 to £25,296 | 20% |
| £25,297 to £43,662 | 21% |
| £43,663 to £150,000 | 41% (Personal Allowance drops by £1 for every £2 earned above £100,000) |
| More than £151,000 | 46% |
Married couples and civil partners also get a Marriage Allowance. This gives the couple the option to unite and pay taxes as one person.
Your employer will use your tax code to determine your tax exemptions and will apply them accordingly. Your tax code will be sent to you by HMRC, but it’s important to make sure your tax code is correct, so you’re not paying too much or too little tax. If you think your tax code is wrong, you should contact HMRC.
National Insurance contributions
If you’re over 16 years of age and you’re an employee earning over a certain amount, you’ll usually have National Insurance deducted from your gross monthly income automatically.
Paying National Insurance helps build your entitlement to state benefits like Maternity Allowance, NHS healthcare, the State Pension and Statutory Sick Pay.
How much you have to pay depends on how much you earn and the rate the government determines for each tax year. For the tax year 2022/23, employees under the State Pension Age earning more than £190 per week have to pay 13.25 per cent of earnings up to £967 per week, reducing to 3.25 per cent on earnings more than £967 per week. On 6th July 2022, this £190 per week threshold will increase to £242 per week.
Student loan repayments
Student loan repayments are also deducted from an employee’s gross pay automatically.
You’ll usually start paying back your student loan from the April following the date you either graduate or leave your course.
HMRC will tell your employer how much to deduct and they’ll also contact the Student Loans Company to let them know how much you’ve repaid. In some instances, employers will put running totals on your payslip so you can keep track of what you owe.
Court orders and child maintenance
Courts are able to order deductions directly from your pay for things like unpaid fines or debt repayments you owe to creditors, and the Child Maintenance Service (CMS) can also request a Deduction from Earnings Order.
Your employer can take an extra £1 as an administration fee for making the deductions, but if they choose to do so, it must be shown separately on your payslip with a description of what it is.
Voluntary deductions
You can give permission for your employer to make voluntary deductions on your behalf. Some of these include the following:
Pension contributions
If your employer has set up or arranged access to a workplace pension and you choose to make contributions, these will be deducted from your gross income.
Health insurance premiums
You may decide to pay health insurance premiums, which will be deducted from your gross pay. The amount taken depends on the provider and plans your employer offers.
Life insurance premiums
You can choose to have money deducted from your gross pay to pay for life insurance. Your beneficiaries will receive the money after your passing.
Charitable contributions
Money can be taken from your pay before taxes are deducted and donated to a charitable organisation. Also known as payroll giving, your employer can set this up by registering with an official Payroll Giving Agency.
Employer-specific deductions
Your employer might also make other deductions that you may be able to opt-out of. Some examples of these include:
- Uniform purchase
- Union dues
- Flexible savings accounts
If you get paid a salary, you can calculate your gross income by checking one of your payslips and noting what your gross pay is, working out how many pay periods you have in one year and multiplying your gross pay by the number of pay periods.
For example, if your gross pay is £2,500 per month, you will have 12 pay periods in one year, so your annual gross income is £2,500 x 12 = £30,000.
To calculate gross income as an hourly employee, note how many hours you work each week and what your hourly rate is. Then multiply the number of hours you work by your hourly rate to get your weekly gross income and multiply that figure by four to get your monthly gross income or by 52 to get your annual gross income.
For example, if your hourly rate is £14.43 and you work 40 hours a week, your weekly gross pay is £14.43 x 40 = £577.20, your monthly gross pay is £577.20 x 4 = £2,308.80, and your annual gross income is £577.20 x 52 = £30,014.40.
Calculating your net pay is relatively straightforward. Simply work out your monthly gross salary, add up the quantity of the deductions and subtract the total amount of deductions from your monthly gross salary.
For example, if your gross pay is £2,500 per month and the amount of your total deductions is £495, your net pay will be £2,005.
Understanding the difference between gross and net pay is important because it helps you to manage your personal finances.
It makes it easier to budget and plan how you spend your money and can also encourage you to create career goals relating to pay rises.
It can be difficult trying to get your head around all the information that’s displayed on your payslip.
As well as usually containing details like your name and address, your payroll number, the date, the tax period, your tax code, your National Insurance number and your pay rate, your payslip must display your gross pay, net pay and any deductions.
Your gross pay is the amount you’ve earned for a particular pay period, including all benefits and allowances, while your net pay is the amount you are paid after all taxes and contributions are deducted from your gross income.
Some of the mandatory deductions your employer might make from your gross pay include payroll taxes, National Insurance contributions, student loan repayments and court orders and child maintenance.
You can also give permission for your employer to make voluntary deductions on your behalf. Some of these include pension contributions, health insurance premiums, life insurance premiums, charitable contributions and employer-specific deductions.
It’s important to understand the difference between gross pay and net pay so you can manage your personal finances.