Your Payslips Explained

Understanding your payslip seems simple enough. You just look at the number at the bottom and see how much you earn. But there is more to your payslip than the money you take home.

Your payslip is a vital document that contains important information that can help you manage your personal finances. From an employer’s perspective, there is a legal requirement to produce a payslip for every employee, detailing specific information.

For employees, payslips are useful for a number of reasons. It is a legal document and proof of your salary and employment. If you wish to apply for a bank loan, or other type of borrowing, it is compulsory to demonstrate your earnings to support your application. Payslips are the most trusted and easiest way to do this.

A payslip also includes a breakdown of your salary. This is very useful when calculating your monthly and yearly budget. Just because you earn, say, £30,000 a year, it doesn’t mean to take home £30,000 a year. Your payslip will explain why, which will help you get a realistic picture you your finances.

This guide explains payslips in full. Discover what the abbreviations mean, why you are getting pay deducted and how long you should keep your payslips for.

What must my payslip show?

By law, your payslip must contain:

• Gross pay
• Variable deductions
• Fixed deductions
• Net pay
• The amount and method for any part payment of wage

Gross pay is your full pay before any tax or National Insurance has been taken off, including any bonuses and commission.

Variable deductions refer to the deductions that could change each payday, and will show the amount that’s being paid. It includes tax and National Insurance.

Fixed deductions, as the name implies, are deductions which don’t change from payday to payday. An employer doesn’t have to give details of what these deductions are for, as long as they give a separate statement with these details at least once a year.

Net pay is the amount you get after all deductions have been taken off.

The amount and method for any part payment of wage could refer to separate figures of a cash payment and the balance credited to a bank account.

What else does my payslip show?

The format of your payslip will vary from company to company, and what’s included will depend on your individual earnings, benefits, and deductions.

• Payroll number
• Tax period
• Your tax code
• National Insurance number
• Statutory pay
  • Sick pay
  • Maternity/paternity/adoption pay
• Expenses
• Pensions
• Student loan
• Workplace benefits
• Court orders and child maintenance

BACS – Bankers Automated Clearing Services

A payment scheme that processes financial transactions

BA/P – Bereavement Allowance/Payment

A weekly allowance given to widowers or surviving civil partners

CHB – Child Benefit

An allowance given to parents with children under 16

ET – Earnings Threshold

The amount you can earn before being required to pay tax

HMRC – Her Majesty’s Revenue and Customs

The government department responsible for tax collection

LEL – Lower Earnings Limit

The amount you can earn before you must pay National Insurance

NIC – National Insurance Contributions

A sum deducted from your salary, in addition to tax

PAYE – Pay As You Earn

A tax deduction taken from HMRC

PILON – Payment in Lieu of Notice

A compensation payment that covers the notice period of an employee who has been terminated/told not to work their notice

PP – Personal Pension

Payments made to a pension provider

SAP – Statutory Adoption Pay

An allowance given to people during the leave they take to adopt a child

SEE – Small Earnings Exception

An exemption given to self-employed people whose profits are less than £5,725 a year

SMP – Statutory Maternity Pay

An allowance given to female employees during the leave they take before and after having a child

SPP – Statutory Paternity Pay

An allowance given to partner employees during the leave they take before and after having a child

SSP – Statutory Sick Pay

Pay given to employees who have been absent from work due to illness.

TY – Tax Year

The year in which tax is calculated

VAT – Value Added Tax

Value based tax added to goods and services

Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018

Recent legislative changes mean that some people’s payslips need to change. Under new payslip laws laid before parliament in February 2018, The Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 was passed.

Employers will now be required to provide employees who are paid according to ‘time worked’, details of the number of hours being paid on their payslip.

General Data Protection Regulations (GDPR)

Payroll companies do not need to seek consent from individual employees that the payroll is processed for. However, the employer will need to inform their employees that they are sharing their personal information with a third party. An employee cannot withdraw their consent for their personal data to be used as part of the payroll processing.