How to Understand Your Payslips as an Employee

If you’re employed full-time, part-time, or as either a contractor or a zero-hours contractor, you’re entitled to an individual and detailed payslip outlining a breakdown of your pay, including deductions and benefits. But over the past year, 2.8 million people in the UK claim to have been impacted by an incorrect payslip. 

Take the impact of Covid-19, for example. As a result of it, you may have been furloughed or had a pay cut – that means you’d need to check your payslips closely to understand what’s changed. This article includes the information you need to help you understand your payslip and what to check each month.

What should a payslip include? 

With every payslip, your employer is obliged to ensure their payroll process is compliant with UK regulations, which means having the correct information. While payslips may look different for different workers, the basic information on them should be the same. At the very least, a payslip should include: 

• Pay before deductions, known as gross pay.
• Pay after deductions, known as net pay.
• Variable deductions – deductions that could change from month to month – such as National Insurance, tax or student loan repayments.
• Fixed deductions – deductions that don’t change from month to month – such as union dues.
• Method of payment – cash, bank transfer or a bit of both.

Your payslip may also include your tax code, National Insurance number and pay rate as well as deductions, such as pension, bonuses or overtime pay.   

When to check your payslip 

You should aim to check your payslip when you receive it. While checking your payslip isn’t always a priority, if there have recently been changes made to your pay, tax or student loan, for example, checking your payslip may be more important. 

These changes make more room for potential errors, so checking your payslip and understanding what those changes mean will help you notice if an error has been made. 

Tips to help you understand your payslip 

You should be able to understand a fair amount of the information on your payslip, such as your payroll number and the date that your pay should be credited to your bank account. 

But there are some sections that may be confusing. Let’s run through the terminology and what it means in practice:

• Tax period: This starts in April in the UK, so your payslip in April should say 01, if you’re paid monthly, and 02 in May.
• Tax code: You should get this from HMRC and it tells your employer how much tax to charge you.
• National Insurance number: This is unique to you and stays with you your whole life. It is a way of keeping a record of your contributions and therefore how much state pension you could get.
• Payments: Your gross and net pay as explained above, as well as any bonuses, commission or overtime you’re being paid.
• Expenses: If you file these each month, the amount owed to you should appear on your payslip.
• Deductions: Both fixed and variable as explained above.
• Pension: If you’re deemed an ‘eligible jobholder’, your employer will auto enrol you into a workplace pension scheme. If this is the case, you should see yours and your employer’s pension contributions on your payslip.
• Student loan: HMRC will tell your employer how much you owe to deduct this from your pay. It’s a good idea to keep hold of your payslips in case anything goes wrong with your student loan, such as being underpaid.
• Sick pay: If you’ve been off sick for four days or more, your employer is required to pay you Statutory Sick Pay (SSP). Sick pay can sometimes depend on your company’s policy and whether your illness meets certain needs. If you require SSP due to coronavirus you may be entitled to it from day one.
• Benefits: Your company may offer a range of benefits that could affect how much you’re paid, such as a cycle-to-work scheme or season ticket loan.

Why you should keep hold of your payslips 

Payslips hold key information about your income and tax deductions. By understanding what the details mean, you can make sure you’re getting paid the correct amount. But it’s important to keep hold of them well beyond pay day. In fact, HMRC recommends you keep hold of your payslips for 22 months after the end of the previous tax year.

A payslip is often the preferred document to prove how much you’re paid or have been paid. Here are some examples of when you may be asked to present them: 

• Claim a tax rebate: If there’s been a change to your circumstances, such as moving from full-time to part-time employment, you may have overpaid tax for a period of time.
• Filing a self-assessment tax return: This is especially important if you have multiple sources of income.
• Renting or applying for a mortgage: Proof of earnings shows landlords and mortgage brokers that you can afford to move into the property you’re after.
• Visa applications: Some countries require proof of income as part of the application process. 

Keeping your payslips in a safe location is incredibly important due to the sheer amount of personal information included on them. If your payslips are digitised, you should have a password to log into the payroll system. If you use paper payslips, store them in a safe place where they won’t accidentally be thrown away or lost.

About the Author

Stacey McIntosh is the editor of Sage Advice UK and Sage Advice Ireland. He has more than 15 years of editorial, PR and social media experience, and has worked across print and online for national newspapers, magazines, PR and marketing agencies.