It's the time of the month, or week (depending on how frequently you get paid), to be greeted with your hard-earned money through a document called a Payslip. Hooray! Not only does it contain your gross pay, but also all the necessary deductions that leave you with your overall take-home earnings. It may have also occurred to you, "what exactly are these deductions...?" It is important to understand the different elements of your paycheck so you can be sure where the rest of your money is going towards. This blog will give you a low-down on everything you need to know to get a better understanding of your long-awaited Payslip.
What exactly is a Payslip?A Payslip is a statement that is given to employees when they have been paid their salary. It shows the taxable gross pay as well as any other compulsory deductions such as National Insurance. It will also state the number of hours worked and the rate per hour depending on your employment contract. Your Payslips can be used as proof of your tax contributions, how much you earn in a job and whether you have put money towards your pension. When it comes to applying for a loan or mortgage, banks may require you to provide certain documents like a wage slip.
The difference between Gross Pay and Net PayYour Payslip itemizes all the income you have acquired over a period of time according to your company's payroll cycle. This is known as Gross Pay and is the overall amount of money earned before any deductions. Once all the deductions are clearly displayed, you are left with the amount you are actually transferred into your account. This is known as your Net Pay. It is important to keep in mind that every employee has a specific tax code and additional elements to contribute to their earnings. So even if you are on the same basic salary as someone else, your take-home pay can differ.
Taxes, Deductions and ContributionsThere are several categories/groups where a sum of your Gross Pay can go towards. The following list will briefly explain what these may be:
- Income Tax: You are required to contribute a percentage of your income towards tax depending on your tax code which is determined by your salary. This is a mandatory financial contribution imposed on a national taxpayer levied by the government. This money goes towards funding government schemes, healthcare, infrastructure amongst other various public expenses. A failure to pay/evasion of tax by legal entities can be considered fraud and punishable by law.
- National Insurance: This type of tax contributes to state benefits and helps build your entitlement for them. The money is put into a fund to pay for things like statutory sick pay, maternity leave allowance, state pensions and other unemployment benefits.
- Employment Pension Scheme: A workplace pension scheme is a method in which you can save early on for your retirement. This is done by taking contributions from your salary each payday. Your employer may add to the pension as part of the scheme. A benefit of this is that you may eligible for tax relief from the government.
- Student Loan Repayment: If you have taken out loans as a means to pay for University, you will begin to make repayments from April following the date of leaving the course- given that you are earning enough. This will be in accordance with your salary, with the HMRC notifying the SLC (Students Loans Company) how much has been repaid.
- Union Fees: These are monthly contributions members of different unions make dependent on their employment status. These dues pay towards resources for the union group in order to achieve better worker rights and representation.