Everything on your payslip, explained — from gross pay to tax codes and pension contributions.
A payslip is a formal record of your earnings and deductions for a given pay period — typically a month for salaried employees or a week for hourly workers. While layouts vary between employers, almost every payslip contains the same core sections: your personal and employment details at the top, earnings in the middle, deductions listed below, and your net pay (take-home amount) at the bottom.
The header section usually includes your name, employee number, payroll reference, National Insurance number, tax code, and the pay period dates. These details are important — particularly your tax code and NI number — as they determine how much you're taxed and how your National Insurance contributions are recorded with HMRC.
The body of the payslip lists your earnings on one side and deductions on the other. The difference between total earnings and total deductions is your net pay — the amount that appears in your bank account.
The most fundamental distinction on any payslip is the difference between gross pay and net pay. Many people are surprised by how large the gap between the two can be — and understanding why it exists is the starting point for understanding your finances.
Gross pay is your total earnings before any deductions. For a salaried employee, this is usually your annual salary divided by 12. It may also include overtime, bonuses, commission, or allowances. Gross pay is the figure quoted in job offers and employment contracts — it is not what you actually receive.
Net pay (also called take-home pay) is what you actually receive in your bank account after income tax, National Insurance, pension contributions, and any other deductions have been taken off. For most UK employees, net pay is roughly 60–80% of gross pay, depending on income level and deductions.
The gap between gross and net is not wasted money — income tax funds public services, NI contributions build your entitlement to the state pension, and pension contributions go into your own retirement fund.
Income tax in the UK operates on a band system. You don't pay the same rate on all your income — different portions of your earnings are taxed at different rates. For the 2024/25 tax year, the bands are:
Your employer deducts income tax from each payslip under the Pay As You Earn (PAYE) system. This means HMRC collects tax throughout the year rather than in a lump sum. The amount deducted from each payslip is calculated based on your tax code, which tells your employer how much of your income should be tax-free in each pay period.
It's worth noting that your effective tax rate — the average rate you pay across all your income — is always lower than your marginal rate (the rate that applies to the top portion of your income).
National Insurance (NI) is a separate deduction from income tax. It funds the NHS, state pension, and certain welfare benefits. As an employee, you pay Class 1 National Insurance contributions, which are calculated as a percentage of your earnings above a threshold.
For 2024/25, employees pay 8% on earnings between £1,048 and £4,189 per month, and 2% on earnings above that. Your employer also pays their own employer NI contribution on top — this doesn't come out of your pay but is a cost to your employer.
On your payslip, NI is usually labelled "National Insurance," "NI Cat A" (for the standard employee contribution category), or similar. Your NI number — a unique reference that looks like two letters, six numbers, and one letter (e.g., AB123456C) — should be shown on your payslip. This is the number that links your contributions to your NI record, which determines your state pension entitlement.
If you work for an employer with a qualifying workplace pension scheme, you are automatically enrolled — and contributions are deducted from your payslip. Workplace pension contributions have two components:
Pension contributions are usually tax-efficient. Contributions are made from pre-tax pay in many schemes (called "salary sacrifice"), which means you're not taxed on the money you put into your pension. This effectively gives you tax relief on contributions at your marginal rate — if you're a basic rate taxpayer, every £80 you contribute costs you £80, but the government adds £20 in tax relief, making your total contribution £100.
Beyond tax, NI, and pension, your payslip may show other deductions. These vary by employer and individual circumstances:
Your tax code is one of the most important pieces of information on your payslip, yet it's one of the least understood. It's issued by HMRC and tells your employer how much of your income should be tax-free.
The most common tax code for UK employees is 1257L. This means you have a tax-free personal allowance of £12,570 per year (£12,570 divided by 10, with the letter L indicating standard allowance). In each monthly payslip, your employer treats roughly £1,047.50 of your earnings as tax-free.
Letter suffixes on tax codes have specific meanings:
If your tax code looks unusual, check your online HMRC account or call HMRC. An incorrect tax code means you could be paying too much — or too little — tax.
Most payslips include cumulative Year-to-Date (YTD) figures alongside the current period amounts. YTD figures show the running total of your earnings and deductions since the start of the tax year (6 April in the UK).
YTD figures are useful for several reasons:
By December or January, your YTD figures should represent roughly 9–10 months of earnings and deductions, giving you a good indication of your full-year position before your P60 is issued in April.
Payslip errors do happen — and they're more common than most people realise. Here are the most common types of errors and what to do about them:
Keep a copy of every payslip — either physical or digital. HMRC can request records going back several years, and payslips are the primary evidence of your earnings and deductions.
Even with this guide, reading a payslip for the first time — or spotting something unexpected — can be confusing. Simplifier is designed to handle exactly this. You can upload or photograph your payslip and immediately get a plain-English breakdown of every line, ask questions about specific deductions, or verify whether your tax code looks correct for your situation.
The AI can also do useful calculations on the fly — estimating your annual salary, calculating your effective tax rate, or working out whether your NI contributions look right for your income level. For the step-by-step guide on how to use Simplifier with your payslip, see the How to Simplify a Payslip guide.
Upload your payslip to Simplifier and get a plain-English explanation of every line — free.