Understanding Your Payslip – Every Line Explained

Your payslip tells you what you earned and what was taken before the money reached your account. But for most people the middle section — the deductions — is opaque. This guide explains every standard line: what it is, how it's calculated, what the current 2026–27 rates are, and what to do if a figure doesn't look right.

What Your Payslip Must Show by Law

Under the Employment Rights Act 1996, every employee and worker has the right to a written payslip. Since April 2019 this right extends to all workers, not just employees. Your payslip must include at minimum:

• Gross pay — your earnings before deductions
• Any variable deductions and what they are for
• Any fixed deductions (if your employer provides a standing statement of those deductions separately)
• Net pay — the amount actually paid to you
• Where net pay is paid in different ways (e.g. part by BACS and part by a payment into a season ticket loan), the amount paid by each method
• The number of hours worked, if your pay varies depending on hours

If your employer fails to provide a payslip, or the payslip omits required information, you can make a claim to an employment tribunal. Tribunals can award any unnotified deductions made in the 13 weeks before the claim.

Gross Pay

Gross pay is your total earnings before anything is taken off. For a salaried employee, this is your annual salary divided by 12 (monthly) or 52 (weekly). It may also include:

• Overtime pay
• Commission
• Bonuses
• Statutory Sick Pay (SSP) if you were off sick
• Statutory Maternity, Paternity or Shared Parental Pay
• Any other contractual allowances (car allowance, shift premium etc.)

All of these are included in gross pay for Income Tax and National Insurance purposes unless they are specifically exempt (for example, mileage reimbursement at HMRC approved rates is not taxable pay).

Income Tax

Income Tax is deducted from your gross pay through the Pay As You Earn (PAYE) system. Your employer calculates and deducts the correct amount each pay period and pays it to HMRC on your behalf. The 2026–27 rates for England, Wales and Northern Ireland are:

Scotland has different Income Tax rates and bands set by the Scottish Parliament. Scottish taxpayers pay the same National Insurance and the same pension contribution rules, but different income tax rates apply to non-savings income.

Income Tax is cumulative — your employer tracks how much tax-free allowance and how much of each rate band you have used so far in the tax year and adjusts each month's deduction accordingly. This is why your tax deduction may be higher or lower in some months if your pay varies.

The Personal Allowance Taper Above £100,000

If your adjusted net income exceeds £100,000, your personal allowance is reduced by £1 for every £2 above that threshold. At £125,140 it disappears entirely. This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140 — your employer's payroll system should handle this automatically if your tax code reflects it, but it is worth checking.

Your Tax Code

Your tax code is the instruction HMRC sends to your employer telling them how much tax to deduct. It is shown on your payslip, your P60, and any HMRC correspondence. Understanding it is important — an incorrect tax code can mean you overpay or underpay tax throughout the year.

If your tax code looks wrong, you can check and update it via your Personal Tax Account at gov.uk or by calling HMRC on 0300 200 3300. Your employer cannot change your tax code — only HMRC can do that.

National Insurance Contributions

National Insurance (NI) funds the State Pension, the NHS, and certain contributory benefits including Jobseeker's Allowance and Maternity Allowance. Employees pay Class 1 NI contributions. The 2026–27 rates are:

The key difference between NI and Income Tax is that NI is calculated per pay period, not cumulatively across the year. Each pay period the NI thresholds and limits are divided by the number of pay periods (12 for monthly, 52 for weekly) and applied to that period's earnings alone. This means:

• A bonus paid in a single month will attract full NI on the bonus above that month's threshold — there is no "annual smoothing"
• You cannot reclaim NI paid on a bonus if your annual earnings turn out to be below the annual threshold
• Your NI deduction will vary from month to month if your pay varies

Your employer also pays employer NI at 15% on your earnings above the Secondary Threshold (£5,000 from April 2025). This is a cost to your employer and does not appear on your payslip as a deduction from your pay.

Pension Contributions

If you are automatically enrolled in a workplace pension, your payslip will show a pension deduction. Under auto-enrolment rules, the minimum contributions from April 2019 are:

Qualifying earnings are the band of earnings between £6,240 and £50,270 per year (2026–27). However, many employers apply contributions to total earnings rather than just the qualifying band — check your scheme documentation.

Net Pay vs Relief at Source

How your pension contribution is deducted affects how tax relief works:

• Net pay arrangement: your pension contribution is deducted from your gross pay before PAYE tax is calculated. You automatically get tax relief at your marginal rate because your taxable income is lower. This is beneficial for all taxpayers, including basic-rate.
• Relief at source: the deduction is made from your net pay after tax. The pension provider then claims 20% basic-rate tax relief from HMRC and adds it to your pot (so if you contribute £80, the scheme adds £20 making £100 total). Higher and additional-rate taxpayers must claim the additional relief themselves through self-assessment.

Most large workplace pension providers (NEST, Aviva, Legal & General, Scottish Widows) use relief at source. Your payslip should indicate which method applies, or you can check your pension scheme documentation.

Student Loan Repayments

If you have a student loan, repayments are collected by HMRC through the PAYE system once you earn above your plan's repayment threshold. The 2026–27 thresholds and rates are:

Like NI, student loan repayments are calculated per pay period rather than annually. The 9% (or 6%) is applied to earnings above the threshold in that period — so a bonus month will generate a larger-than-usual repayment that is not refundable even if your annual earnings are below the threshold.

If you have both a Plan 1/2/4/5 loan and a Postgraduate Loan, both repayments appear separately on your payslip. They are calculated independently — you pay 9% on earnings above your main plan threshold, and 6% on earnings above £21,000, simultaneously.

What Else Might Appear on Your Payslip

Beyond the standard statutory deductions, your payslip may include:

• SAYE (Save As You Earn): monthly contributions to a save-as-you-earn share option scheme — voluntary and agreed by you
• Cycle to Work scheme: instalments for a bike purchased through salary sacrifice, reducing your gross pay and therefore your tax and NI
• Childcare vouchers / salary sacrifice childcare: legacy schemes where contributions reduce gross pay
• Season ticket loan: monthly repayment of an interest-free loan from your employer for a travel pass — not a deduction from taxable pay
• Court attachment orders: deductions ordered by a court, such as for child maintenance (Attachment of Earnings Order) — your employer is legally obliged to make these
• Trade union subscriptions: if you've authorised your employer to deduct union membership fees

Salary Sacrifice — How It Changes Your Payslip

Salary sacrifice is an arrangement where you give up part of your cash salary in exchange for a non-cash benefit. The benefit is provided by your employer as part of your remuneration package instead. Common examples include pension contributions, cycle to work, electric vehicle schemes, and childcare.

The key effect: your gross pay on your payslip is lower than your contractual salary, because the sacrificed amount is removed before PAYE runs. This means you pay less Income Tax and NI — which is the whole point. Your employer also pays less employer NI, which is why many employers actively encourage salary sacrifice.

However, salary sacrifice reduces your "pensionable pay" and may affect benefits such as mortgage affordability assessments, life cover (if based on salary), and statutory payments (SSP, SMP, SPP are all based on average weekly earnings).

How to Check Your Payslip Is Correct

A rough manual check on a standard monthly payslip (England, standard 1257L code, no salary sacrifice):

• Tax-free monthly amount: £12,570 ÷ 12 = £1,047.50. Any monthly earnings below this are tax-free.
• Taxable pay: monthly gross minus £1,047.50 (if gross is below the higher rate threshold of £4,189/month).
• Income Tax: taxable pay × 20%.
• NI-free monthly amount: £12,570 ÷ 12 = £1,047.50. Earnings below this attract no NI.
• NI (main rate): (monthly gross − £1,047.50) × 8%, up to the monthly UEL of £4,189.
• Pension: monthly gross × your contribution rate (minimum 5%).

If your figures are significantly different from this and you have a standard tax code, it is worth questioning — either your tax code is unusual, there is a salary sacrifice arrangement running, or there may be an error.

Common Payslip Problems

Wrong tax code

The most common payslip problem. An emergency code (W1/M1) is often applied at the start of a new job and can persist for months if HMRC hasn't issued a proper code. Check your Personal Tax Account at gov.uk or contact HMRC directly — your employer cannot change it. Once HMRC issues a new code, any overpaid tax is usually refunded through adjusted PAYE over the rest of the tax year.

Missing student loan deduction

If your earnings are above your repayment threshold and no student loan deduction is showing, contact the Student Loans Company to check your repayment status and ensure HMRC has been notified to start deductions.

Unexpected deductions

Your employer can only deduct money if it's authorised by statute, your contract, or your prior written consent. If you see a deduction you don't recognise or haven't agreed to, ask your payroll department in writing for an explanation. If it cannot be justified, you may have a claim for unlawful deduction from wages at employment tribunal.

Pay below minimum wage after deductions

Deductions made for the employer's benefit (such as uniform costs, tools, or till shortfalls) cannot reduce your effective hourly rate below the National Minimum Wage. Use our Minimum Wage Checker if you think this might apply to you.

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Frequently Asked Questions

Why does my Income Tax change when my pay stays the same?

Income Tax under PAYE is cumulative — your employer adjusts each month's deduction based on how much tax-free allowance and how much of each rate band you have used since April. In early months of the tax year you may receive "catch-up" refunds or overpayments settle. If your code changes mid-year, tax is recalculated from April, which can cause a spike or refund in the month the new code is applied.

I left a job mid-year — will I get a tax refund?

Possibly. If you were employed for less than a full tax year and didn't use your full personal allowance, you may have overpaid PAYE tax. If you start a new job immediately, the cumulative system will usually correct this. If you don't start a new job, you can claim a refund from HMRC — you'll need your P45 (issued by your employer when you leave) or complete a P50 form if you've been unemployed for more than 4 weeks.

What is the P60 and when do I get it?

Your P60 is an annual summary of your total earnings and all PAYE deductions — tax, NI, and student loan — for the tax year just ended (5 April). Your employer must provide it by 31 May. Keep your P60 — it is used for tax returns, mortgage applications, and to verify your NI record.

Can I opt out of my pension?

Yes. If you were automatically enrolled, you can opt out within the first month and receive a full refund of any contributions already made. After that window, you can still stop contributing but will not receive a refund. Your employer must re-enrol you every three years. Opting out means losing your employer's contribution — often the most financially significant element of the package.

My payslip shows "NI number" — is this normal?

Yes. Your National Insurance number must appear on your payslip. This is your unique identifier for tax and benefit records throughout your working life. It is in the format XX 99 99 99 X. Guard it carefully — it can be used in identity fraud.

Summary

• Gross pay is your total earnings before deductions; net pay is what hits your bank account
• Income Tax is deducted cumulatively via PAYE using your tax code — 20%, 40% or 45% depending on your earnings band
• The personal allowance is £12,570 for 2026–27 and tapers to zero above £125,140
• National Insurance is calculated per pay period (not cumulatively): 8% between £12,570–£50,270 and 2% above
• Pension auto-enrolment minimum is 5% employee + 3% employer on qualifying earnings (£6,240–£50,270)
• Student loan repayments are 9% (or 6% for Postgrad) above your plan threshold, also calculated per period
• Employers can only deduct money they are legally or contractually entitled to — unlawful deductions can be challenged at tribunal
• Use the Payslip Deductions Explainer → to see every figure calculated for your specific salary