What a payslip really shows and how to read it correctly
Many people receive a payslip every month without fully understanding what it means. Here is a clear breakdown of what a payslip includes, why it matters and how to spot errors.
What a payslip really shows and how to read it correctly
A payslip is a document you receive from your employer every time you are paid. It explains exactly how your pay is calculated, including your earnings, tax deductions, pension contributions and other adjustments. Many people look at their payslip only to check the final amount paid into their bank account, but understanding the full details can help you avoid errors, spot overpayments or underpayments and monitor changes in your earnings.
This article explains the essential sections of a payslip, what each part means, and why it is important to review it regularly. This information is for general education only and does not replace professional or tax advice.
Why payslips are important
- They confirm how your salary was calculated.
- They show income tax, National Insurance and pension deductions.
- They can be used when applying for a mortgage, rental agreement or loan.
- They provide evidence of employment and earnings.
- They help you check if your tax code is correct.
- They serve as proof in disputes regarding unpaid wages or incorrect deductions.
By law, employees must receive a payslip on or before payday. Source:
https://www.gov.uk/pay-and-work-rights
Key sections of a standard payslip
1. Personal and employer information
This section includes:
- Your name or employee number
- Employer name
- Pay date and pay period (weekly, monthly, etc.)
2. Gross pay
Gross pay is the total amount earned before any deductions. It can include:
- Basic salary
- Overtime
- Bonus or commission
- Holiday pay
- Statutory payments (e.g., sick pay or maternity pay)
This figure is not the amount you receive in your bank account.
3. Tax code
The tax code tells your employer how much Income Tax to deduct. A common code is ‘1257L’, meaning you receive the standard tax-free allowance. Emergency or incorrect codes can result in too much or too little tax being taken.
Check your tax code if you change jobs, receive benefits, or earn income from different sources.
Common deductions found on payslips
| Deduction Type | What It Means |
|---|---|
| Income Tax (PAYE) | Tax taken from your salary using the government’s Pay As You Earn system |
| National Insurance (NIC) | Contributions towards state benefits and pension entitlement |
| Pension Contributions | Payments into your workplace or private pension scheme |
| Student Loan Repayments | Repayments based on your earnings above a set threshold |
| Other Deductions | Union fees, cycle-to-work schemes, childcare vouchers or salary sacrifice |
Source for PAYE and deductions:
https://www.gov.uk/paye-for-employers
Net pay: the amount you actually receive
Net pay is your income after deductions. It is the amount that is transferred to your bank account.
Formula:
Gross pay – all deductions = Net pay
It is useful to compare the net pay on your payslip to the payment received in your bank to make sure they match.
Year-to-date (YTD) figures
Many payslips show cumulative totals, including:
- Total earnings for the tax year so far
- Total income tax paid
- National Insurance contributions
- Pension contributions
These figures help you track how much tax you have paid and may be needed when completing self-assessment tax returns.
How to spot possible problems on your payslip
You might need to take action if:
- Your tax code is unfamiliar or suddenly changed without explanation
- Pension or student loan deductions are missing or seem incorrect
- Overtime or bonuses do not match what was agreed
- You are placed on an emergency tax code (codes ending in W1, M1 or X)
If you notice errors, first speak to your employer or payroll team. If the issue is related to your tax code, you may need to contact HMRC directly.
More guidance on payslips:
https://www.gov.uk/check-your-paye-tax-online
Can digital payslips be used as proof of income?
Yes. Digital payslips are widely accepted for:
- Mortgage and rental applications
- Proof of earnings for benefits applications
- Financial reference checks
As long as the payslip clearly shows your name, employer, pay date, and earnings, it is typically valid. Some lenders may request three to six months of payslips for verification.
Key things to remember
- A payslip explains how your earnings are calculated and what deductions are made.
- Always check your tax code, gross pay and deductions to avoid mistakes.
- Net pay is what you receive after all deductions.
- Payslips can be important for legal, financial and employment purposes.
- Reviewing them regularly can help you catch errors early.
This article is for educational and general information purposes only. It does not assess whether any financial action is suitable for you, and it is not professional advice. If unsure about your tax situation or deductions, contact HMRC or a qualified adviser.
