If you have employees, you know how important it is to get things right regarding their pay. Workers need to know how much they will be paid and when, and they need to trust that the company they are working for will pay them fairly and on time. Getting payslips right is an essential part of this process.
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What is a Payslip?
Once, it was a piece of paper (the ‘slip’) handed out with an employee’s actual wages. Now, a payslip is usually either an electronic document (often a PDF) sent via email or accessed from an online system.
A payslip, which can also be called a pay stub, paycheque, wage advice or salary statement, provides information about your pay, including the pay period and your earnings before and after any deductions such as tax.
Payslips must be provided before the money reaches an employee’s bank account. Employees can decide if they provide printed or electronic payslips.
Which Workers Are Legally Entitled to a Payslip?
Most workers are legally entitled to a payslip. Generally, if a company considers you an employee, you should receive a written payslip detailing your pay before and after any deductions.
There are a few exceptions:
- Workers who are contractors or freelancers rather than employees.
- Those working in the police service, as merchant seamen or in share fishing.
What Should be Included on a Payslip?
Since 2019, it has been a legal requirement for employers to provide itemised payslips in the UK.
These itemised payslips must include:
- The amount you earn before and after deductions such as tax and National Insurance.
- The hours you have worked, if your pay is based on an hourly rate.
To fulfil this legal requirement and help people understand the details of what they are being paid, a payslip typically includes the following information:
- Number of hours being paid.
- The period the pay covers.
- Employee tax code.
- Amounts of pay before any deductions (called gross pay).
- Pay amounts after deductions, such as tax (called net pay).
- Amounts of any variable deductions, including National Insurance, student loan repayments and pension contributions.
- Amounts of fixed deductions, such as loans for travel or union subscriptions.
- A breakdown of how wages will be paid.
- When applicable, bonuses, maternity or statutory sick pay.
Employers must also clearly explain any deductions that are fixed in amount, for example, a season ticket loan. They can do this either on the payslip or in a separate statement. If they choose to send a separate statement, this should be done before the first payslip is received and updated yearly.
Understanding Your HMRC Payslips
Let’s have a look at the information in a payslip:
Personal information: employee details such as name, address, National Insurance number and payroll or employee number (used by companies to identify individuals on their payroll).
Tax period & code: the specific tax period within the UK tax year (also known as the fiscal year, which runs from the start of April to the end of March the following year) for this particular pay slip, along with the relevant tax code for the individual.
Gross & net pay: gross pay shows what an employee has earned before taxes and other deductions; net pay shows an employee’s take-home pay once those deductions have been made. A payslip will usually indicate what makes up the gross pay (for example, where bonuses are included or statutory pay received). It will detail the different deductions (for example, tax, National Insurance and pension contributions).
Year to Date (YTD): this information shows the total amount earned and the total deductions taken for the whole period since the start of the fiscal year.
Workplace benefits: benefits the company offers, such as health insurance or a company car, will be clearly shown on a payslip.
Expenses: employers may indicate payment or reimbursement of business expenses on payslips, although some employers use a different system to payroll for expenses.
What is a Tax Code?
A tax code comprises numbers and letters that tell HMRC how much money you should pay in tax. The numbers and letters are directly linked to your circumstances, and the combination can be confusing. As the code directly impacts how much money is deducted from your pay in PAYE (‘pay as you earn’ or the money taken from your pay by your employer and given directly to the tax man), it is helpful to understand what the code means.
While we’ve included the main tax codes below, more detail is available in our handy tax codes guide for the UK.
1257L: The UK’s most common tax code is for people with one job or pension.
L: you are entitled to the tax-free allowance.
K: used when you have income that is not being taxed in another way and is worth more than your tax-free allowance, for example, benefits that you need to pay tax on or you are paying the tax you owe from a previous year
M & N: you’ve received a transfer of 10% of your partner’s Personal Allowance (M), or you have given 10% of your Personal Allowance (N).
C: indicates you are being taxed at the Welsh income tax rates.
S: indicates you are being taxed at the Scottish income tax rates.
T & OT: these codes indicate that your pay has reached the amount where the tax-free allowance is impacted, with T showing that a calculation is done to determine how much personal allowance you still have and OT meaning that you are no longer eligible for any tax-free allowance.
BR, DO & D1: these codes only apply if you earn income from a second job or second pension.
NT: no tax is payable on this income.
W1, M1 or X at the end of the code: these are temporary emergency tax codes, for example, if you have started a job after working as a contractor and HMRC does not have access to all the necessary details.
Tax codes usually change at the start of a new tax year or when something changes in your income or benefits. HMRC will send you a letter telling you what the new code is.
Free Payslip Template
Here at Factorial, we know how important it is to get payslips right, so we’ve developed a free and easy-to-use template.
What does a payslip have to show?
Legally, a payslip has to show your total earnings and a breakdown of the deductions that calculate your pay. For some workers, they must also show the hours worked.
Are payslips confidential?
Yes, your payslip is private and confidential information.
When can you see your payslip?
Legally, you have a right to see your payslip on or before payday.
Does PAYE mean you pay tax?
PAYE stands for ‘pay as you earn’, which means that HMRC takes the tax you owe directly from your employer. If you are on PAYE, you do not need to worry about paying your tax.
Who can take money from my wages?
In certain circumstances, organisations can take debt repayments from your wages. The UK government site has information on having debt repayments taken from your wages.
Can you request old payslips?
Yes, you can request old payslips from current or previous employers. If they do not have them available, then you can also get this information from HMRC.