Understanding Your Payslip

What Your Employer Must Show

By law, your employer must give you a payslip on or before each pay day. It must show your gross pay, deductions, and net pay. Since April 2019, payslips must also show the number of hours worked if your pay varies by hours. Most payslips include considerably more detail than the legal minimum.

Payslips come in different formats — some are paper, most are now digital through an online portal or payroll app. Regardless of format, they all contain the same core information. Let us walk through each section.

Gross Pay

Gross pay is the first and usually the largest number on your payslip. It is your total earnings before anything is deducted. For a salaried employee, this is your annual salary divided by the number of pay periods (typically 12 for monthly pay). For example, a £36,000 salary gives a gross monthly pay of £3,000.

Your gross pay may also include additional items such as:

• Overtime: Extra hours worked beyond your contract, often at a higher rate.
• Bonus: Performance-related or annual bonuses, which are fully taxable.
• Commission: Sales-related payments.
• Statutory pay: Maternity, paternity, or sick pay if applicable.
• Arrears: Back pay for a pay rise applied retrospectively.

All of these items are added to your basic pay to form your total gross pay for that period. Tax and NI are then calculated on the total.

Your Tax Code

Your tax code appears on every payslip, usually near the top. It tells your employer how much tax-free pay to give you. The standard code for 2025/26 is 1257L, which means you get £12,570 of tax-free income per year.

The number in your tax code represents your personal allowance with the last digit removed. So 1257 means £12,570. The letter indicates the type of allowance:

• L — Standard personal allowance.
• M — You have received a transfer of 10% of your partner’s personal allowance (Marriage Allowance).
• N — You have transferred 10% of your personal allowance to your partner.
• T — HMRC needs to review your code (various reasons).
• K — Your deductions exceed your allowance, so tax is added rather than subtracted. This can happen if you have significant benefits in kind.
• BR — All income taxed at basic rate (20%), no allowance. Common for second jobs.
• D0 — All income taxed at higher rate (40%). Used for second jobs where basic rate is already exceeded.
• NT — No tax to be deducted.

If your tax code does not look right, it is worth investigating. An incorrect code can mean you overpay or underpay tax for months before it is corrected. You can check your tax code through your personal tax account on the HMRC website, or by calling HMRC directly.

PAYE Income Tax

PAYE stands for Pay As You Earn. It is the system your employer uses to deduct income tax from your pay before it reaches your bank account. The amount of PAYE deducted depends on your gross pay, your tax code, and how much you have already earned in the tax year so far.

PAYE works on a cumulative basis. Your employer calculates your tax for the year to date, subtracts what has already been deducted in previous months, and deducts the balance this month. This is why your tax deduction can vary slightly from month to month, especially if you receive a bonus or your pay changes.

The income tax rates for 2025/26 are:

On a £36,000 salary, the annual PAYE would be 20% of £23,430 (£36,000 minus £12,570) = £4,686, or £390.50 per month.

National Insurance

National Insurance is a separate deduction from income tax. On your payslip, it is usually shown as “NI” or “NIC.” As an employee, you pay Class 1 NI at 8% on earnings between £12,570 and £50,270 per year, and 2% on earnings above £50,270.

Unlike PAYE, NI is not calculated on a cumulative basis — it is worked out independently for each pay period. This means your NI deduction is more predictable from month to month, but it also means that if your pay fluctuates, you may pay a slightly different total over the year compared to a flat salary.

Your payslip may also show the “NI category letter,” which is usually “A” for most employees. Different letters apply to specific groups, such as employees under 21 (category H) or apprentices under 25 (category M), where the employer pays reduced NI.

On £36,000, the monthly NI deduction would be approximately £156 (8% of £23,430 divided by 12).

Pension Contributions

If you are enrolled in a workplace pension (and since auto-enrolment, most employees are), your contribution will appear as a deduction on your payslip. The minimum employee contribution under auto-enrolment is 5% of qualifying earnings, though many employers offer higher matching.

There are two common ways pension contributions work on your payslip:

• Relief at source: The pension provider claims basic rate tax relief (20%) from HMRC. Your payslip shows the deduction after tax. If you pay £100 from your net pay, the pension provider tops it up to £125.
• Net pay (salary sacrifice): Your contribution is deducted before tax is calculated. Your taxable pay is lower, so you pay less tax and NI. The deduction usually appears before the tax calculation on your payslip.

Check which method your employer uses because it affects how tax relief works, especially if you are a higher-rate taxpayer.

Student Loan Repayments

If you have an outstanding student loan, repayments are deducted through your payslip once your earnings exceed the relevant threshold. The plan type determines the threshold and rate:

The deduction is 9% (or 6% for postgraduate loans) on earnings above the threshold for your plan. If you are on Plan 2 and earn £36,000, your annual repayment would be 9% of £8,705 (£36,000 − £27,295) = £783, or about £65 per month.

Your payslip should show which plan you are on. If it is wrong (for example, you have already repaid your loan), contact the Student Loans Company to update your records.

Other Common Deductions

Depending on your employer and benefits package, you may see additional lines on your payslip:

• Childcare vouchers / Tax-Free Childcare: If you joined a childcare voucher scheme before it closed to new entrants, contributions are taken from your gross pay.
• Cycle to Work scheme: A salary sacrifice arrangement that lets you hire a bicycle and accessories tax-free.
• Health insurance: If your employer provides private health cover, the premium may be deducted from your pay (and is treated as a benefit in kind for tax purposes).
• Union subscriptions: Trade union membership fees, if deducted at source.
• Season ticket loan: Some employers offer interest-free loans for annual travel passes, repaid through monthly deductions.
• Attachment of earnings: Court-ordered deductions for debts or child maintenance.

Year-to-Date Figures

Most payslips include a year-to-date (YTD) section, showing the running total of your gross pay, tax, NI, and pension contributions since the start of the tax year (6 April). These figures are important because:

• They help you verify that your cumulative tax is correct.
• They should match the figures on your P60 at the end of the year.
• They are useful when applying for a mortgage or loan, as lenders often ask for your latest payslip showing YTD figures.

If your YTD tax looks too high, it may be because you started the tax year on an emergency tax code, or because a bonus pushed you into a higher tax band temporarily. PAYE should self-correct over the year, but if it does not, contact HMRC.

Net Pay — Your Take-Home

Net pay is the bottom line — the amount that actually hits your bank account. It is your gross pay minus every deduction listed above: income tax, NI, pension, student loan, and anything else.

For a £36,000 salary with a standard tax code, 5% pension contribution, and a Plan 2 student loan, the monthly breakdown would be roughly:

You can check these figures using our salary calculator, which breaks down your take-home pay with all the same deductions.

Common Payslip Errors to Watch For

Payroll mistakes are more common than you might think. Here are the errors that crop up most often:

• Wrong tax code: This is the single most common problem. If your code is wrong, every month’s tax will be wrong. Check it whenever you start a new job or at the start of a new tax year.
• Emergency tax code: If you start a new job without giving your employer a P45, you may be put on an emergency tax code and overtaxed. This usually resolves once HMRC sends the correct code, but check it is applied.
• Student loan deducted after repayment: It can take time for the Student Loans Company to notify HMRC that your loan is repaid. If deductions continue, contact SLC.
• Pension opt-out not processed: If you opted out of the workplace pension but deductions are still being taken, speak to your payroll department.
• Incorrect hours: For hourly workers, check that the hours shown match what you actually worked, including any overtime.
• Missing pay rise: If a pay rise was agreed but your gross pay has not changed, raise it with your manager or HR.

If you find an error, tell your employer first. Most mistakes are corrected in the next pay run. For tax code issues, you may also need to contact HMRC directly.

P45 and P60 — Related Documents

Two important documents relate to your payslip:

P45: You receive this when you leave a job. It shows your total pay and tax for the year to date. Give it to your new employer so they can apply the correct tax code from day one. Without it, you may be put on an emergency code.

P60: You receive this at the end of each tax year (by 31 May). It is a summary of your total pay and deductions for the full year. Keep it safe — you may need it for tax returns, mortgage applications, or benefit claims. Most employers now provide it digitally.

Both documents should match the year-to-date figures on your final payslip of the period. If they do not, query it with payroll.

Tips for Managing Your Pay

• Check your tax code at the start of every tax year and whenever you change jobs.
• Keep payslips for at least 22 months in case of tax queries.
• Use the YTD figures to sense-check your tax position mid-year.
• If you are a higher-rate taxpayer with a relief-at-source pension, claim the extra 20% relief through Self Assessment.
• Set up your personal tax account on HMRC to check your tax code, NI record, and estimated tax position at any time.

For a quick check of what your take-home pay should be, use our salary calculator.