ARTICLE: How to Read a Payslip the Easy Way

ARTICLE: How To Read a Payslip- The Easy Way

Michelle Mire https://blog.wagepoint.com/all-content/how-to-read-a-paycheck-the-easy-way-infographic

When entrepreneur and Muppeteer Jim Henson made his frst dollar, he framed it and hung it on his ofce wall. For everyone, whether you’re the company owner or an employee, earning an income is a source of pride and a primary foundation for economic security.

Surprisingly, in spite of how important getting paid actually is, most people don’t understand the fundamentals of payroll, including what’s taken out or added to a payslip.

Why is Knowing How to Read a Payslip is so Important?

From paying the bills to retaining valued workers, payslips matter to employers and employees.

Every Payslip Matters to Every Employee

What are Some of the Most Basic Details in a Payslip?

While there’s no specifc format set in stone, there’s some standard information that’s included no matter how a payslip is designed.

Some of the most basic details include:

• Personal Information – Name and home address

• Payroll Number – Provided by company to identify individuals on payroll • Tax Code – Tells employer how much tax-free pay you should get before deducting tax

from the rest

• National Insurance Number – Personal number for the social security system • Payments, wages, bonuses and commission – How much you have earned before deductions are made

• Deductions – Tax and National Insurance

• Pensions – A long term savings plan with tax relief

• Student Loan – Deductions of loan repayments

£50/hr.

£4,000

What’s the Diference Between Total Pay (Gross Pay) and Net Pay (Final Pay)?

This is really the crux of why a payslip is provided to employees. Total pay is the amount of the payslip before any taxes or other deductions are taken out or any contributions are added. Net pay is the fnal amount that the employee takes home.

What Are Deductions and What’s Taken Out of a Paycheck?

The verb deduce means to subtract or take away. Income tax is the deduction that everyone is most familiar with. As part of issuing payroll, employers (businesses) have to take out (withhold) a percentage of each employee’s taxable pay. This is done every time payroll is run. (Shepherds Friendly Society)

Deductions can include taxes, pension contributions, medical insurance payments, school loans, garnishments.

Types of Deductions:

• The tax you have paid - Your payslip should show the amount of income tax that has been deducted. The amount of tax that you pay depends on your salary and your Personal Allowance.

• The National Insurance contributions that you have paid - Your National Insurance (NI) contributions are deducted from your gross pay. NI goes towards providing some benefts, for example a state pension.

• Pensions – the amount you contribute towards any employer or workplace pension will be shown.

• Student loan – if you are making repayments on a student loan then this will be shown.

• Court orders or child maintenance – unpaid fnes and other court orders can be deducted directly from your pay.

What Are Contributions and What’s Added to a Paycheck?

To contribute means to add. When it comes to payroll, employees aren’t the only ones who have to pay taxes. Employers also contribute to Pension and Medical Insurance. Plus, they’re also responsible for unemployment insurance.

Other contributions may also include other income, like overtime, tips, bonuses, commissions, expenses and paid time of such as sick, personal or vacation time.

What’s the Diference Between Total vs Year-to-Date Amounts in a Payslip?

Depending on how a payslip is formatted, you may see fgures for total and year-to-date amounts. When you see these fgures, the total is the total amount of the paycheck and year-to-day is the total since the start of the fscal year for your payroll.

Expenses = Money going out!

There are many diferent types of expenses.

Review the chart below to learn more about fxed expenses, variable expenses and occasional expenses and brainstorm examples for each type.

Fixed Expense

Expenses that cost the same amount each month. These bills cannot be changed and are usually paid on a regular basis (monthly, weekly or yearly).

Examples: • Rent • Car payment/ Transportation • Mortgage/Rent

Variable Expense

Expenses that vary from period to period. These bills can be more easily changed or altered depending on use and needs.

Examples: • Utilities (water, gas, electric) • Groceries • Automobile gas

Occasional (Periodic) Expense

Like fxed expenses, these bills generally cannot be easily changed; but, they do not occur on a regular weekly or monthly basis, making them more challenging to plan for.

Examples: • New seasonal clothing • Home maintenance • Car maintenance