Understanding your payslip: Making sense of deductions and contributions

Your payslip can be a useful tool to see just where your money is going, from your pension, to your tax contribution, to other information like potential sick pay, health insurance or student loans. 

While some people may just accept their payslip without taking a second glance, experts say it’s useful to know exactly where your salary is going. 

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Here’s what to expect from your payslip, including any deductions or contributions you should be aware of. 

What is a payslip?

A payslip tells you how much you’re getting paid each pay period – which could be per month, weekly or fortnightly. It should tell you your gross pay (the amount you’ve earned before any deductions like tax), and your net pay, the actual amount hitting your bank account. A payslip could be a paper document, or it could be sent to you by email or accessed through a website. 

Rhiannon Byers, head of workplace and community programmes at The Money Charity, said the most common deductions you’ll see on your payslip are “income tax, National Insurance, pension contributions and student loan repayments”. 

“Your tax code, made up of letters and numbers, should also be on there. This code is used to calculate how much tax you need to pay,” she explained. 

“Somewhere on your payslip should also be a summary of how much you’ve been paid, and how much has been deducted, across the whole financial year to date.”

The government-run service MoneyHelper states all employees are entitled to an “individual, detailed written payslip – when, or before, they’re paid”.

“The right to a payslip applies to casual staff as well as employees. It doesn’t apply to independent contractors or people working freelance,” it said. 

What is National Insurance?

Two deductions you’ll normally see on a payslip are income tax and National Insurance. Income tax is a deduction that goes towards paying for all of the services we use in society, like schools, transport and policing. National Insurance, however, pays for certain state benefits, like the NHS and the state pension. 

Your National Insurance contributions also decide if you qualify for certain benefits, and how much state pension you’ll get when you retire, MoneyHelper lays out. 

In terms of state pension, “You need at least ten qualifying years of contributions to get any amount, and at least 35 years to receive the full amount.”

Byers added: “The contributions you pay depend on how much you earn and whether you are employed or self-employed.

“Around the time you turn 16, you will receive a National Insurance letter, which includes your own personal account number. The number makes sure that the National Insurance contributions and tax you pay are properly recorded on your account. It also acts as a reference number for the whole social security system.

“Every National Insurance number is different. It’s made up of letters and numbers and it is important to keep it safe.”

She added: “You stop paying National Insurance contributions when you reach state pension age.”

Pension contributions

Another contribution you might see on your payslip relates to your pension. MoneyHelper has some valuable information on pensions, from whether you’ll be automatically enrolled, to how much you’ll need to contribute.  

“Pension contributions are the amount of money per pay period being added to your workplace pension pot,” Byers explained. 

“Your payslip should detail both pension contributions made by you (the employee) and your employer, who will often make some form of direct contribution too. In other words, free extra money!”

Byers said it’s “easy to think of employee pension contributions as a deduction”, but once this money goes into a workplace pension, “it is still your money! Just locked away in a special pot that is then added to by the government and often also by your employer, and invested so you have money to live on when you retire.”

She said for most people, the minimum you and your employer usually contribute to your workplace pension is a total of 8% of your earnings above £120 a week. For those who can afford it, however, “paying a bit more into your workplace pension by increasing your employee contributions is a very good idea” so you can have enough money to live on when you stop working. 

Byers explained that it can be “tempting” to think about reducing your pension contributions if you’re struggling to make ends meet during the cost of living crisis, however “there are a number of reasons why it might be best to look hard at other ways of increasing your income or reducing your everyday outgoings before cutting your pension contributions”. 

“Pension contributions are tax free, which makes them a really effective way to save for when you retire,” she said. 

“Being tax free means the government ‘tops up’ how much goes into your pension pot, in most cases by 20%. Employers will often make contributions too, so reducing or stopping what you pay in may mean you may lose out on this extra boost too.

“Remember, a pension is an investment that will provide you with an income in the future. For most of us, the state pension will not be enough to live on when we retire, so building a workplace pension is vital in looking after ‘future you’,” she explained. 

Student finance

If you’re a salaried employee, student loan repayments are typically taken out automatically, and you’ll see this amount on your payslip. 

How much you’ll pay in student finance depends on when you went to university, where in the UK you live and how much you earn. It’s worth checking exactly which plan you’re on so you can work out how much you’ll be paying off each pay cycle. 

An employee will only start repaying their student loan when their income is over the repayment threshold – currently £25,000 per year. If you earn under the threshold for your repayment plan, you won’t see this deducted from your payslip. 

Other deductions and contributions

MoneyHelper states there could be a number of other deductions or contributions you see on your payslip; this could include sick pay, maternity, paternity or adoption pay, any workplace benefits like health insurance, court orders and child maintenance, or trade union subscriptions.

Byers explained that if you spot any issues with your payslip, or don’t understand aspects of it, you should “speak to your employer’s HR or payroll department”. 

“We would always recommend checking your payslip every now and again to make sure it doesn’t contain any errors, e.g with your tax code and hours worked, as this can happen more often than you think!” Byers said. 

She added that it’s worth keeping hold of your past payslips, or saving electronic copies, as they can be “super helpful for many reasons”, whether it’s if you need to demonstrate address history for a tenancy, or your income levels for a mortgage application. 

“Be sure to keep them in a safe place and make sure you have got your P45s (issued when you leave an employer) and P60s (summary of tax paid in each tax year) too,” she explained. 

For more information on your payslip, managing your money, and advice on debt, The Money Charity shared its Money Manual guide. 

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