How to understand your payslip

calculator and pound coins

This article was written by the Great British Mag content team on 7 April 2021.

Whether you work part-time alongside your studies or have graduated and are starting your career as an employee, you’ll receive regular payslips from your company.  

Full of jargon and strange codes, payslips can be confusing – even Brits struggle to understand them sometimes. It’s important to get to know yours though, so that you can make sure you’re being paid the right amount and aren’t having too much tax taken. Keep reading to find out how.   

What is a payslip?

A payslip is a document from your employer that details your most recent earnings. It could be given to you on paper or as an online document, and you can expect it on or before the day you are paid each week or month.

You only get a payslip if you are an employee – if you’re self-employed you don’t need to create payslips for yourself and you probably won’t get any from any clients that you freelance for. Instead, you will need to complete a self-assessment form once a year to record how much you’ve earned and to pay your taxes.

Why do I get payslips?

Payslips have a few different purposes. First and foremost, they let you know exactly what you’re being paid and detail any deductions taken from your overall wage, so you can make sure you’re receiving the right amount from your employer and are paying the correct tax.

They also serve as proof of income, so are important to have if you’re applying for a loan or mortgage, or need to extend your visa.

How do I read my payslip?

Payslips vary between different employers in terms of layouts and wording and contain a lot of information that you might never have come across before. This means it can be tricky to work out exactly what they’re trying to tell you. 

Here are the most important parts of your payslip to familiarise yourself with.

Net pay

This is what most people’s eyes go straight to when they rip open that envelope or download the doc from an email. ‘Net’ in this sense means the final figure that’s left after any deductions have been made. So, your net pay is the amount of money that will be heading straight into your pocket.

Gross pay

No, ‘gross’ doesn’t mean disgusting here (even if you’re less than impressed by your wage!). Instead, it means the total amount you’re due to be paid for the work you’ve done, before deductions are made. So, if you pay tax or have any other payments that come straight out of your wage, this number will be higher than your net pay and will be representative of your total wage or salary. For instance, if your gross pay is £1,000 every month, then you’re on a £12,000 wage or salary.

Your gross pay is made up of the money you earned for the hours you worked, plus any extras such as sick pay, holiday pay or bonuses. In the section, you might notice columns called ‘units’ and ‘rates’. Units are the number of hours or days you’ve worked, while the rate is your hourly or daily pay. However, if you’re on a pre-agreed annual salary, payments might not be broken down in detail like this.


This is the section that details what has been subtracted from your gross pay to leave you with your net pay. Depending on how much you earn, you might be liable for tax, and it’s likely that you’ll have been automatically enrolled into a pension scheme with your employer, so these contributions will be in this section too.

Income tax or PAYE

Also called PAYE (which stands for pay as you earn), income tax will be in the ‘deductions’ section. It’s the standard tax that everyone pays on their wages and is usually taken automatically. The payments go to HMRC (Her Majesty’s Revenue and Customs) to contribute towards the cost of public services, like the police force and education.

Tax is only paid on earnings over £12,570 (this figure usually increases each year, allowing us to earn more before we have to start paying tax). But paying through the PAYE system means that tax contributions are taken every time you receive your wages, so they’re spread evenly throughout the year as opposed to only being taken once you’ve earned a certain amount.

You can find more information on income tax in our handy guide.

National insurance contributions

This might be labelled as NI contributions or NIC on your payslip and will also appear under the ‘deductions’ section. It’s another form of tax and goes towards funding things like maternity pay and state pensions. It has its own rates and thresholds, separate to income tax.

The amount that comes out of your pay is your personal contributions. Your employer also pays a certain amount on your behalf too, which might be detailed on your payslip and labelled as ’employer NI contributions’. You don’t need to worry about that figure though – it doesn’t come out of your wages.

Pension contributions

If you’re 22 or older and are earning £10,000 a year or more in the UK as an employee, you’ll be automatically enrolled into a pension scheme by your employer. This is to help employees save for retirement. You’ll contribute a certain percentage of your pay, which will be listed on your payslips, and your employer will also contribute on your behalf.

You can opt out of the pension scheme if you’d like to – just talk to your employer.

What other information should I check on my payslip?

It’s important to make sure that your personal details are correct so that you know you’re paying the correct taxes and aren’t losing out. Here is the information you should check.

Tax code

Your tax code determines what tax you pay. The standard tax code in the UK right now for people who have one job is 1257L – it represents your tax-free allowance (of £12,570). When you’re initially added to a company’s payroll, they might use an emergency tax code until they’re able to determine what your code should be. This might mean you’re taxed more initially, but you will get this money back – which is why it’s important to check.

If you have more than one job, you might see the tax code BR on your payslip. This stands for basic rate and means all of those earnings are taxed at 20%, as it is assumed your tax-free allowance is being used up with wages from another job.

NI code

Also called NI class or NI letter, this determines the type of national insurance contributions you make. Most employees will be in category A. However, if you’re under 21 your category will be M, and if you’re working as an apprentice and are under the age of 25, you’ll be H.

Your national insurance number will be printed on your payslip somewhere too, so check this is correct so that you know payments are being made in the right name.

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What tax do I have to pay if I work in the UK?

10 ways to stay in the UK after your studies

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