Calculating a UK payslip means starting with an employee’s gross pay, working out the correct deductions, and then calculating take-home pay, which is the net pay employees actually take home. Two of the most important deductions to keep in mind when calculating pay are PAYE Income Tax and National Insurance. Employers may also need to account for deductions like pension contributions, student loan repayments, and more. For the 2026/2027 tax year, the standard Personal Allowance is £12,570, while most employees pay National Insurance at 8% on earnings between the main employee thresholds.
This guide explains how UK payslips work and how to calculate PAYE, National Insurance, and net pay step by step.
Before Calculating a UK Payslip
Before you start calculating pay, you need to know what a payslip is and what it includes. In addition to our explainer article, take a look at how to create a UK payslip, which also includes a free payslip template.
Employers must provide employees and workers with a payslip on or before payday. This document shows an employee exactly how their pay has been calculated, and employers are subject to record-keeping regulations according to GOV UK. A wageslip–which is synonymous with payslip–must show:
- Gross pay before deductions
- Deductions such as Income Tax and National Insurance
- Net pay after deductions
- Hours worked if the employee’s pay changes depending on the number of hours they work
Payslips can be provided on paper or electronically.
Many payslips also include information such as:
- Employee name
- Payroll number
- National Insurance number
- Tax code
- Basic salary or hourly pay
- Overtime
- Bonuses or commission
- Pension contributions
- Student loan deductions
- Year-to-date earnings and deductions
As an employer, this information is easier to keep track of if you use an employee portal as part of your HR software that helps with payroll preparation. However, when it comes to payslips, the three figures that employees are usually most interested in are gross pay, deductions, and net pay.
What is gross pay?
Gross pay is the employee’s pay before deductions are taken.
This could include:
- Their basic salary
- Hourly wages
- Overtime
- Bonuses
- Commission
- Statutory payments
- Other taxable payments
For example, if an employee earns a salary of £2,500 per month and receives a £200 bonus, their gross pay for that month would be:
£2,500 + £200 = £2,700 gross pay
What is net pay?
Net pay is the amount left after the necessary deductions have been made. It is what we call take-home pay, because it is what the employee receives, which is “taken home.” This is the amount paid into the employee’s bank account.
A simple formula is:
Gross pay – deductions = net pay
For example:
Gross pay: £3,000
PAYE tax: £390.50
National Insurance: £156.16
Net pay before any other deductions:
£3,000 – £390.50 – £156.16 = £2,453.34
What you need to calculate a UK payslip
Calculating pay and creating a payslip is one of the most important things employers need to get right, and it is something you need to devote extra care to each month as part of your payroll. But before calculating pay, you need some basic information about the employee and the pay period.
The employee’s gross pay
To calculate gross pay, start with everything the employee is being paid during that payroll period.
For a salaried employee paid monthly, you can usually calculate their basic monthly salary by dividing their annual salary by 12, for the 12 months of the year.
For example:
Annual salary: £36,000
£36,000 ÷ 12 = £3,000 per month
You then need to add any additional taxable payments, such as overtime, commission like OTE, or other bonuses. Learn all about how to pay employees in our article on compensation management.
The employee’s tax code
The employee’s tax code tells payroll how much tax-free income they are entitled to and how Income Tax should be calculated.
A common tax code is 1257L.
The numbers in a tax code usually indicate the employee’s tax-free allowance. Multiplying 1257 by 10 gives:
1257 × 10 = £12,570
This matches the standard Personal Allowance for the 2026/27 tax year.
Not everyone has the same tax code.
For example, an employee may have a different code if they:
- Have more than one job
- Receive taxable company benefits
- Owe tax from a previous year
- Receive other untaxed income
- Have a reduced Personal Allowance
Scottish taxpayers normally have an S at the beginning of their tax code, while Welsh taxpayers may have a C. Consult our article on the subject for more tax codes.
Employers should always use the tax code supplied by HMRC rather than trying to choose a tax code themselves.
The employee’s National Insurance category
To calculate wages correctly, you also need the employee’s National Insurance category letter. Many employees fall into Category A, but different categories can apply depending on circumstances such as age, apprenticeship status or whether the employee qualifies under certain employer schemes.
Your payroll software normally uses the category letter to apply the correct National Insurance rates.
Other deductions
You should also check whether anything else needs to be deducted from the employee’s pay.
Deductions might include:
- Workplace pension contributions
- Student loan repayments
- Postgraduate loan repayments
- Salary sacrifice arrangements
- Child maintenance deductions
- Payroll giving
- Union subscriptions
- Other authorised deductions
These deductions can all affect the employee’s final net pay.
Step-by-step instructions for calculating PAYE, National Insurance and net pay
Here is a simple way to understand how to calculate pay in order to create a payslip.
Step 1: Calculate gross pay
Begin with the employee’s total pay before deductions.
For a monthly employee earning £36,000 per year:
£36,000 ÷ 12 = £3,000 gross monthly pay
If they also received a taxable bonus of £500 that month:
£3,000 + £500 = £3,500 gross pay
Step 2: Check the employee’s tax code
Next, check which tax code applies.
For someone with the standard 1257L tax code, the annual Personal Allowance is normally £12,570.
This means that, in simple terms, the first £12,570 of annual income can be earned without paying Income Tax.
For the 2026/27 tax year, the standard Personal Allowance remains £12,570.
However, the Personal Allowance starts to reduce when adjusted net income exceeds £100,000 and can fall to zero for higher earners.
Step 3: Calculate PAYE Income Tax
PAYE stands for Pay As You Earn. In case you missed it, check out more HR abbreviations and terms.
PAYE is the system employers use to deduct Income Tax from an employee’s wages before paying them.
For employees in England, Wales and Northern Ireland, according to official sources, the main 2026/2027 Income Tax bands are:
- 20% basic rate on the first £37,700 of taxable income
- 40% higher rate on taxable income above £37,700 up to £125,140
- 45% additional rate above £125,140
These bands apply after taking account of the employee’s Personal Allowance.
For example, an employee earns £36,000 per year and has the standard £12,570 Personal Allowance.
Their taxable income is:
£36,000 – £12,570 = £23,430
All £23,430 falls within the 20% basic-rate band.
Income Tax for the year:
£23,430 × 20% = £4,686
For a simple employee receiving the same salary every month:
£4,686 ÷ 12 = £390.50 per month
The PAYE deduction is therefore approximately £390.50.
In practice, payroll software calculates PAYE using the employee’s tax code and tax history. Most tax codes operate on a cumulative basis, which means previous pay and tax from the same tax year can affect the amount deducted in the current month.
For this reason, manual calculations are useful for understanding a payslip, but payroll software should be used for the final payroll calculation to make sure it is correct.
What about Scottish Income Tax?
Employees who are Scottish taxpayers have different Income Tax bands.
For 2026/2027, Scottish employment income can be taxed at rates of 19%, 20%, 21%, 42%, 45% and 48%, depending on the employee’s taxable income.
The standard Personal Allowance is still £12,570.
A Scottish employee will normally have an S at the start of their tax code.
Because the Scottish bands are different, you should not use the England, Wales and Northern Ireland examples in this article to calculate PAYE for an employee with a Scottish tax code.
Step 4: Calculate employee National Insurance
National Insurance is separate from Income Tax.
For most Category A employees in 2026/27, employee National Insurance is charged at:
- 0% up to £1,048 per month
- 8% on earnings between £1,048 and £4,189 per month
- 2% on earnings above £4,189 per month
According to GOV.UK, the equivalent weekly Primary Threshold is £242 and the Upper Earnings Limit is £967.
Suppose an employee earns £3,000 per month.
The first £1,048 is not subject to employee National Insurance.
That leaves:
£3,000 – £1,048 = £1,952
The employee pays 8% on this amount:
£1,952 × 8% = £156.16
Their employee National Insurance deduction is therefore £156.16.
Unlike PAYE Income Tax, employee National Insurance is generally calculated separately for each pay period rather than using a cumulative annual calculation.
Step 5: Calculate any other deductions
Once PAYE and National Insurance have been calculated, check whether there are other deductions.
For example, an employee may have:
- £100 workplace pension contribution
- £50 student loan repayment
- £20 other authorised deduction
These deductions also reduce the net pay–the amount eventually paid to the employee.
Remember that different deductions are treated differently for tax and National Insurance purposes. For example, some pension and salary sacrifice arrangements can change the amount of pay subject to tax or National Insurance. Payroll software should apply these rules based on how the deduction has been set up.
Step 6: Calculate net pay
Finally, calculate pay from what is left.
In its simplest form:
Gross pay – PAYE – employee National Insurance – other deductions = net pay
For example:
Gross pay: £3,000
PAYE: £390.50
National Insurance: £156.16
If there are no other deductions:
£3,000 – £390.50 – £156.16 = £2,453.34
The employee’s estimated net pay is therefore £2,453.34.
Example scenarios of calculating a UK payslip
The examples below use the 2026/27 rates and assume that the employee:
- Is paid monthly
- Lives in England, Wales or Northern Ireland
- Has the standard Personal Allowance
- Has a standard tax code
- Pays Category A employee National Insurance
- Has no pension, student loan or other deductions
They are simplified examples designed to explain the calculation. An employee’s actual PAYE figure can differ depending on their tax code and previous earnings.
Payslip Calculation Example 1: £24,000 salary
The employee earns £24,000 per year.
Monthly gross pay:
£24,000 ÷ 12 = £2,000
1. First, calculate annual taxable income:
£24,000 – £12,570 = £11,430
The employee remains within the basic-rate tax band.
2. Annual Income Tax:
£11,430 × 20% = £2,286
3. Approximate monthly PAYE:
£2,286 ÷ 12 = £190.50
4. Now calculate National Insurance.
Monthly earnings above the £1,048 Primary Threshold:
£2,000 – £1,048 = £952
National Insurance:
£952 x 8% = £76.16
Estimated net pay:
£2,000 – £190.50 – £76.16 = £1,733.34
The employee therefore takes home approximately £1,733.34 per month, before any additional deductions.
Payslip Calculation Example 2: £36,000 salary
The employee earns £36,000 per year.
Monthly gross pay:
£36,000 ÷ 12 = £3,000
1. Annual taxable income:
£36,000 – £12,570 = £23,430
2. Income Tax:
£23,430 x 20% = £4,686 per year
3. Approximate monthly PAYE:
£4,686 ÷ 12 = £390.50
4. Now calculate National Insurance:
£3,000 – £1,048 = £1,952
£1,952 × 8% = £156.16
Estimated net pay:
£3,000 – £390.50 – £156.16 = £2,453.34
The employee therefore receives approximately £2,453.34 per month, before any other deductions.
Payslip Calculation Example 3: £60,000 salary
In this example, the employee earns £60,000 per year.
Monthly gross pay:
£60,000 ÷ 12 = £5,000
1. Annual taxable income:
£60,000 – £12,570 = £47,430
The first £37,700 of taxable income is taxed at 20%:
£37,700 × 20% = £7,540
The remaining taxable income is:
£47,430 – £37,700 = £9,730
This falls into the 40% higher-rate band:
£9,730 x 40% = £3,892
Total annual Income Tax:
£7,540 + £3,892 = £11,432
2. Approximate monthly PAYE:
£11,432 ÷ 12 = £952.67
3. Calculate National Insurance
National Insurance also needs two calculations because monthly earnings are above the £4,189 Upper Earnings Limit.
NI between £1,048 and £4,189:
£4,189 – £1,048 = £3,141
£3,141 x 8% = £251.28
NI above £4,189:
£5,000 – £4,189 = £811
£811 x 2% = £16.22
Total employee National Insurance:
£251.28 + £16.22 = £267.50
Estimated net pay:
£5,000 – £952.67 – £267.50 = £3,779.83
The employee therefore receives approximately £3,779.83 per month, before pension contributions or any other deductions.
After calculating a payslip
When managing payroll, once you have calculated pay, you should check the figures carefully before issuing the wageslip and making the payment to the employee.
This includes checking:
- Gross pay
- Tax code
- PAYE deduction
- National Insurance category
- Employee National Insurance
- Pension contributions
- Student or postgraduate loan deductions
- Statutory payments
- Other payroll adjustments
- Final net pay
Employers must send employees their payslip on or before payday. This is easily done with HR automation.
Payroll information must also be reported to HMRC through a Full Payment Submission, usually known as an FPS. The FPS includes information such as taxable pay, tax deducted, student loan deductions, and other figures from the payroll calculation.
Checking payroll data before submission helps reduce the risk of incorrect deductions, payroll corrections, and questions from employees after payday.
Simplify your payroll with Factorial
Calculating a UK payslip starts with gross pay and finishes with net pay. In between, employers need to apply the employee’s tax code, calculate PAYE Income Tax, calculate employee National Insurance, and include any other relevant payroll deductions. Calculating PAYE, National Insurance, and net pay is only one part of running payroll.
You also need to manage working hours, bonuses, expenses, benefits, and absences. Handling this information across spreadsheets and emails can take time and lead to errors. Accurate payroll records and connected payroll data with payroll preparation make it much easier to get the calculation right every month.
Factorial brings your payroll data together in one place and helps automate payroll tasks. Request a free demo to see the platform in action.
FAQs About Calculating Pay
Basic pay is the amount an employee earns before extra payments or deductions. It does not usually include overtime, bonuses, commission or benefits.
Your pay is calculated from your salary or hourly rate, plus any extra earnings such as overtime or bonuses. Deductions such as PAYE Income Tax, National Insurance and pension contributions are then taken away to calculate your net pay.
Gross salary is your pay before tax and other deductions. If you are paid monthly, multiply your monthly gross pay by 12 to estimate your annual gross salary.
For example:
£2,500 x 12 = £30,000 gross annual salary
To calculate net pay, subtract PAYE Income Tax, employee National Insurance and any other deductions from your gross pay.
Gross pay - deductions = net pay
Your actual net pay will depend on your tax code and any other deductions that apply.
If you know your annual salary, divide it by 12.
For example:
£36,000 ÷ 12 = £3,000 gross monthly salary
Your monthly take-home pay will be lower after tax, National Insurance and other deductions.
