UK Payslip explained: Pay, Tax and deductions made simple

Statutory requirements for UK payslips

UK law requires all employees and workers to receive a payslip on or before payday, regardless of whether they are paid weekly, monthly, or on another schedule.

Since April 2019, this requirement has applied not only to employees but also to workers and agency staff.

What must be included on every payslip:

• Gross pay (before deductions)
• Total deductions, with a breakdown of each deduction
• Net pay (take-home pay)
• Pay period and payment date
• Employee name and payroll number

Additional information commonly included:

• Tax code and income tax deducted
• National Insurance contributions
• Pension contributions (where applicable)
• Year-to-date totals for tax and National Insurance
• Hours worked (where pay varies by hours)

Employers who fail to provide compliant payslips risk tribunal claims, with potential compensation of up to £80 per employee. Beyond compliance, clear payslips build trust, reduce payroll queries, and demonstrate professional payroll management.

Breaking down gross pay

Gross pay is your total earnings before any deductions are applied. This section explains how your total pay for the period has been calculated.

Common elements of gross pay include:

Basic salary:
For salaried employees, this is your annual salary divided by the number of pay periods. For example, a £30,000 annual salary paid monthly would show £2,500.

Overtime payments:
Any hours worked beyond contracted hours should be itemised, showing both hours worked and the rate paid.

Bonuses and commissions:
One-off or performance-based payments should be clearly labelled to distinguish them from regular earnings.

Allowances:
Payments for travel, tools, or other work-related expenses are typically shown separately.

Holiday pay:
Pay for annual leave taken during the period should be clearly identified, particularly where holiday pay calculations vary.

Many payslips also show year-to-date gross pay, which helps employees track annual earnings and monitor tax thresholds.

Understanding tax deductions

Income tax is calculated through PAYE (Pay As You Earn) and depends on your tax code.

Tax codes explained

Your tax code indicates how much you can earn tax-free and whether any adjustments apply. Common tax codes include:

• 1257L – standard personal allowance
• K codes – tax owed from previous years or benefits exceeding allowance
• BR – all income taxed at basic rate (often second jobs)
• D0 – all income taxed at higher rate
• NT – no tax deducted

How tax is calculated

Income tax is charged on earnings above your personal allowance. While rates and thresholds are reviewed annually, the personal allowance is currently frozen until 2031.

Your payslip should clearly show:

• Tax deducted for the current pay period
• Cumulative tax paid year-to-date

Unexpected changes may indicate an incorrect tax code, which should be queried with HMRC.

National Insurance contributions

National Insurance (NI) contributions fund the state pension, NHS, and other state benefits.

Rates and thresholds can change from year to year, so it’s important your payslip reflects the current tax year rates.

Employee National Insurance

Employees pay Class 1 National Insurance on earnings above the primary threshold. Payslips should show:

• NI deducted for the current period
• Year-to-date NI totals

Employer National Insurance

Employers pay Class 1 Secondary National Insurance at 15% on earnings above the secondary threshold.

Although not legally required, most payroll systems display employer National Insurance on payslips. This improves transparency and helps employees understand the full cost of employment.

Accurate NI records are essential, as contributions count towards entitlement to state benefits and the state pension.

Pension contributions and auto-enrolment

Under UK auto-enrolment legislation, all workers must be assessed for pension eligibility.

Only those who meet the criteria (eligible jobholders) are automatically enrolled into a workplace pension scheme.

Minimum contribution rates

The current minimum total pension contribution is 8% of qualifying earnings (between £6,240 and £50,270 annually).

• Employer minimum contribution: 3%
• Remaining contribution: made up by the employee, including tax relief

How contributions are calculated

Most schemes use qualifying earnings, not total salary. Payslips should show:

• Pensionable pay
• Contribution percentages
• Amount deducted

Salary sacrifice vs. relief at source

• Salary sacrifice: reduces gross pay before tax and NI
• Relief at source: shows full contribution, with tax relief applied separately

Year-to-date pension totals help employees track contributions and employers demonstrate compliance.

Other common deductions

Depending on personal circumstances and employer policies, payslips may include:

Student loan repayments:

Automatically deducted when income exceeds the applicable threshold. The plan type and amount should be clearly shown.

Childcare schemes:

Salary sacrifice childcare schemes reduce gross pay before tax calculations.

Union subscriptions:

Trade union fees are often collected through payroll as a regular deduction.

Company benefits:

Contributions towards benefits such as health insurance or gym memberships may appear.

Court orders:

Attachment of earnings orders or maintenance payments are shown using standard codes to protect privacy.

All deductions must be authorised and clearly labelled. Employees should query anything they do not recognise.

What employers should include for clarity

Beyond statutory requirements, best-practice payslips often include:

• Clear pay period dates
• Detailed breakdown of hours worked
• Holiday balances
• Plain-English explanations of deductions
• Payroll contact details
• Year-to-date summaries

These additions significantly reduce payroll queries and improve employee confidence.

Red flags employees should watch for

Payslips should be checked regularly. Potential issues include:

• Unexpected tax code changes
• Sudden changes in NI deductions
• Incorrect hours or overtime
• Unauthorised benefit deductions
• Pension contributions are stopping without request
• Incorrect year-to-date totals

Raising issues early helps avoid long-term payroll errors.

Using payslips for financial planning

Payslips play an important role in:

• Tax returns and HMRC checks
• Mortgage and loan applications
• Benefits and entitlement calculations
• Pension planning
• Career and salary progression decisions

Employees should keep payslips for at least six years, as they may be needed for legal or financial purposes.

How Global HRIS can help

At Global HRIS, we help employers create clear, compliant payroll processes that reduce queries and improve employee understanding.

Whether you need support with payroll compliance, payslip design, or managed payroll services, our experts can help ensure your payroll communications meet best-practice standards.

If you’d like advice tailored to your organisation, get in touch with our team today.