Wages

Payslip
What is National Insurance?
National Insurance number
Tax code
Income tax
Tax allowances
BACS
Period of pay
Rates of pay
Basic rate of pay
Holiday pay
Overtime
Gross pay
Total deductions
Deductions
Net pay
Total figures
Statutory pay
Pension schemes
P45
P60
National minimum wage (NMW)
Workers not covered by the NMW
National Minimum Wage Helpline

[1]

Wages

[2]

In this unit we will look at:

• a standard wage slip
• tax
• National Insurance
• P45 and P60
• the national minimum wage (NMW).

[3]

Payslip

This is a typical layout for a payslip.

The figures used in this payslip are examples only.

[4]

Here we see the employer’s name and your name.

The figures used in this payslip are examples only.

[5]

This is the department where you work.

The figures used in this payslip are examples only.

[6]

This is your National Insurance number.

The figures used in this payslip are examples only.

[7]

What is National Insurance?

National Insurance (NI) contributions are payments which most people make towards the National Health Service and to enable them to get entitlement to some social security benefits and the state pension.

• For employed earners, contributions are paid as a percentage of income above a certain level.

• Self-employed people pay a set weekly rate and, if their profits are high enough, a percentage of their income.

• Someone who is unemployed or unable to work through sickness may have contributions credited.

[8]

National Insurance number

The Inland Revenue and Department for Work and Pensions (DWP) use your National Insurance number (NINO) to identify your contribution and benefit record.

The number always consists of two letters, six numbers and a letter, for example: AB 123456 C.

National Insurance contributions vary.

For more information visit www.hmrc.gov.uk/nic and www.dwp.gov.uk

The figures used in the payslip are examples only.

[9]

Tax code

This is your tax code.

The figures used in the payslip are examples only.

[10]

Income tax

Income tax is money deducted from your earnings which is paid to the government. The government department in charge of collecting tax is the Inland Revenue.

If you work for an employer your tax and National Insurance will be paid automatically. It comes straight out of your wages before you receive them. This is known as Pay As You Earn (PAYE).

Everybody can earn a certain amount (known as the personal allowance) before they start paying tax or National Insurance.

From April 2007 the personal allowance is £update. This figure changes yearly.

For more information visit www.hmrc.gov.uk/rates

[11]

Tax allowances

The figures used in this payslip are examples only.

The number in the tax code is usually three figures. It represents the total of all available allowances minus any amount to be deducted to cover other income or benefits, and with the last digit removed.

The allowance as shown by the number in the tax code is then rounded up.

The letter indicates what kind of tax code it is. In this example L means the basic tax allowance.

For example, if your total income is £9,992 of which £4,895 is not taxable your code is 489L.

[12]

BACS

The figures used in this payslip are examples only.

The payment method is BACS.

• BACS stands for Bankers Automated Clearing System.

• BACS is an automated service operated by banks and building societies.

• It means the money is transferred directly from the company’s account into the employee’s bank account.

You may also be paid by cash or cheque.

[13]

Period of pay

The figures used in this payslip are examples only.

The period is the week of the current tax year. In this case week 8.

[14]

Rates of pay

The figures used in this payslip are examples only.

There are three separate rates of pay: basic, holiday and overtime.

[15]

Basic rate of pay

The figures used in this payslip are examples only.

The basic rate of pay is £4.93 per hour.
You have worked 28 hours.
Therefore:
28 x £4.93 = £141.98

The B indicates that this pay is both taxable and subject to National Insurance.

[16]

Holiday pay

The figures used in this payslip are examples only.

Holiday pay is paid at the same hourly rate as basic pay.

Therefore:
23 hours x £4.93 = £113.39

[17]

Overtime

The figures used in this payslip are examples only.

You did 12.7 hours of overtime this week.
Overtime is paid at £6.57 per hour

Therefore:
12.7 hours x £6.57 = £83.46

[18]

Gross pay

The figures used in this payslip are examples only.

Adding together the three rates of pay gives a total of £338.83.

• This is subject to tax and National Insurance deductions.
• Total pay is also known as gross pay.

[19]

Total deductions

The figures used in this payslip are examples only.

• The amount of tax deducted is spread out across the year.

• The deductions column shows the amounts of tax and National Insurance.

• The total deduction is shown here.

[20]

Deductions

The figures used in this payslip are examples only.

Any other deductions which are taken from your wages at source, such as union subscriptions, student loan repayments and private pension schemes will be shown in this column.

[21]

Net pay

The figures used in this payslip are examples only.

So, total pay minus total deductions gives the amount you receive in wages.

£338.83 - £75.97 = £262.86

This is known as net pay.

[22]

Total figures

The figures used in this payslip are examples only.

Here we see the total figures paid this year.

It shows:
• total pay (gross)
• how much of that is taxable
• the total tax paid
• total National Insurance paid by the employer and by the employee.

[23]

Statutory pay

The figures used in this payslip are examples only.

These initials stand for:
• Statutory Adoption Pay (SAP)
• Statutory Paternity Pay (SPP)
• Statutory Sick Pay (SSP)
• Statutory Maternity Pay (SMP).

If applicable the totals paid this year would be shown here.

[24]

Pension schemes

The figures used in this payslip are examples only.

Any payments made to a pension scheme either by the employer or employee would be shown here.

[25]

P45

• When you leave a job or you are dismissed you should receive a P45 from your employer.

• A P45 shows the amount that you have earned and how much tax you have paid this year.

• You will need this form to give to your next employer or to claim benefits.

[26]

P60

• A P60 form details your earnings and tax deductions for the current tax year and is provided by your employer.

• The law requires you to keep a record of your taxable income for at least 22 months after the end of the current tax year. So make sure you keep it in a safe place as duplicates are not always easy to get.

• Self-employed people must keep records for up to six years after the relevant tax year.

[27]

National minimum wage (NMW)

Workers in the UK aged 16 (and above school-leaving age) or over are now legally entitled to a national minimum hourly wage regardless of where they work, the size of the firm or the worker’s occupation.

This includes casual labourers, agency workers, homeworkers, workers on short-term contracts and workers employed by subcontractors.

Before October 2004, workers aged between 16 and 17 were not entitled to the national minimum wage.

For more information about who is entitled to the national minimum wage and rates of pay visit www.hmrc.gov.uk/nmw

[28]

Workers not covered by the NMW

There are some workers who are not covered by the national minimum wage. These are:

• workers aged under 16
• some apprentices
• some people living and working within a family such as nannies and au pairs
• self-employed people.

For more information about the national minimum wage visit www.hmrc.gov.uk/nmw

[29]

National Minimum Wage Helpline

If you want to find out if you are eligible to claim the NMW you can contact the National Minimum Wage Helpline on tel: 0800 9172368 (local rates apply).

You can also use the Tailored Interactive Guidance on Employment Rights (TIGER) website at www.tiger.gov.uk if you think you are entitled to the NMW but your employer is not paying it to you.

If you think you are entitled to the national minimum wage and are not receiving it you should contact the NMW helpline (see above) or seek the help of an experienced adviser, for example, at a Citizens Advice Bureau.

For more information about the NMW visit www.hmrc.gov.uk/nmw

Wages
End