Each month you receive an email or a link to your online payslip. You may still be one of the few who is handed a paper slip showing how much you have been paid that month. Some people discard these in a drawer and forget about them; others give it a quick check to make sure it lives up to what they expected. You may be one of a few who are intrigued by the details of your monthly accounts and want to know a lot more. If this is you, then you may have found a potential future career, and an online accounting course could be just what you are looking for.
However, for most of us, we just want to know what is essential and what is just for information. Here we guide you through the details of your payslip. You never know, understanding the information on this form could reveal you are not being paid exactly what you deserve.
What Is A Payslip?
It may be that you have only just started work and you have received your first payslip. It could be that you have been working for years, but for one of a million reasons, you now need to understand what the information means. This payslip is a record of your employment and payment. It lays out your payroll number, your gross and net pay, the tax you have paid and more.
You may not think it is important, but you are entitled to an individual and detailed written payslip at the time of being paid. This entitlement is also afforded to casual workers. The only people who shouldn’t expect a payslip are those who work as freelancers or independent contractors.
How Long Should You Keep Payslips?
When you apply for a loan or a mortgage, you could be asked for between three and six months of payslips. If you have a mix of earnings – some paid as an employee, and some as a contractor, you will need to retain your payslips to help you complete your tax return. Therefore, you should store your April 2019 payslip until January 2021, when you will complete your return and pay any additional taxation.
It is vital to keep your payslip safe. This safety is part of proper record-keeping, in case you need to challenge how much tax you have paid. Also, you need to keep good records because you will need to show evidence of earnings in the future. However, you must keep the payslips safe because they contain a lot of your personal information, not least your national insurance number. Therefore, keeping these in a safe place could protect you from identity fraud.
What Are The Details Found On A Payslip?
As well as your personal information, such as your name and home address, there will be a lot of other details included. Here is a summary of this information.
- Payroll number – your unique identifier with your company. This is a number that links only to your and payment records with that company.
- Variable deductions – all amounts taken out of your pay – such as pension, taxation, national insurance, which can vary dependent upon the amount you are paid.
- Fixed deductions – these are amounts taken out of your pay that stay the same no matter how much you earn. This could include child maintenance payments, for instance, or a court may have ordered deductions from your pay.
- Total take-home pay – this is the amount that should be paid into your bank account. This is what you have to spend each month.
- Amount and method of any part payment of wage – this will detail how you are to be paid and will also let you know if your take-home pay includes other monies that you are owed.
- Tax period – the tax year runs from April to April. Therefore, April will show as 01 on your payslip and March will show as 12. So, 0119 means the tax month of April 2019.
- Tax code – you should have been sent your tax code by the HM Revenue and Customs (HMRC). The code tells your employer how much of your pay is tax-free. The number represents this amount. The letter represents your status, for instance, a single person, a person receiving a married tax deduction, or whether you are temporarily on an emergency tax code.
- National insurance number – everyone who works in the UK must have a national insurance number (NI) This number will remain the same throughout your life – and will have been allocated to your on your 16th birthday. This number helps ensure that all your contributions are properly recorded and your entitlements to benefits tracked.
- Expenses – this is money returned to you for any payments you made in the duty of doing your work. This money is not subject to taxation, so it should be displayed separately on your payslip.
- Pensions – most workplaces are now registered in a work-based pension scheme. The amount you pay to your pension should be displayed, as well as the amount paid by your employer.
- Student loan – student loans are retrieved directly from your pay when you hit a certain level of monthly income. The amount deducted for your student loan should be displayed on your payslip.
- Workplace benefits – it may be that you get health insurance or a company car as part of your employment. These must be listed on your payslip because they can impact on your tax code.
What’s a tax code?
Your tax code is used by an employer to help work out the income tax they should take from your pay. You and the employer will be informed of your tax code. The code will typically start with a number and end with a letter. The code 1250L is used for most people who have a job. This means you can earn £12500 before you are taxed. It is called your personal allowance – and no tax will be taken from this. The amount of tax you do pay is worked out on the sum above this amount.
The letter L means you are entitled to a standard tax-free personal allowance. M means you have a marriage allowance received from your partner and N that you have given your marriage allowance to your partner. T is the code that includes other calculations needed to work out your personal allowance. You can find a complete list of the letters and meanings on the HMRC website.
However, you may have an emergency tax code, and this may require action on your part. If your tax code ends in W1, M1 or X, then it indicates that you will pay tax on all your income above the basic allowance. You may have started a new job or receive company benefits or the State Pension. This code is temporary, and you should work with your employer to seek your accurate and appropriate tax code.
What is the total gross pay?
This is the total amount of money you have earned before the deductions are taken from your pay. When you are employed, you will be given a set amount for your salary or amount per hour. This is the amount you are paid before deductions. Therefore, the gross pay is what you are told you will earn.
What is the total net pay?
The net pay is what you actually earn after all the deductions have been removed. The net pay is also known as your take-home pay.
What is YTD in a salary slip?
YTD stands for Year to Date. This is the total of transactions from the start of the financial year to now. Therefore, you may have YTD net pay or YTD deductions.
What does the payment method mean?
The payment method is how the employer issues your net pay to you. This payment will more than likely come through BACS, which is a bank transfer straight to your account. Some employers still pay in cash, though rarely. You may also be issued a paycheque, which you pay into your bank account.
Common Payslip Abbreviations
BACS – Bankers Automated Clearing Service, which is an electronic payment scheme
BA – Bereavement Allowance, which is an allowance provided to those widowed or surviving civil partners
CHB – Child Benefit for parents with children under the age of 16
CTC – Child Tax Credits for parents with children under the age of 16
NI – National Insurance – the tax you pay to contribute to the state benefit system
PAYE – Pay as you Earn – is a form of tax deducted from your pay by the HMRC
EE – the pension contribution paid by the employee
ERS – the pension contribution paid by the employer
SAP – Statutory Adoption Pay
ShPP – Shared Paternity Pay
SMP – Statutory Maternity Pay
SPP – Statutory Paternity Pay
SSP – Statutory Sick Pay
Understanding your payslip can be empowering. There is all your financial information available in one place. You could be paying more tax than you need, the student loan payments may have started inappropriately early, some of your work may not have been counted, your expenses may have been missed off. In short, there a whole host of things that can go awry in the process of coming to your take-home pay. If you do not check your payslip, you could find yourself short each month for no reason.
Good financial records are one of those disciplines that most of us avoid. It looks complicated, and we are not sure why some of it matters. However, successful management of your payslip could save you time and trouble in the future.