A Basic Guide to Payslips
From the 6th April 2019, it is an employee’s statutory right to receive an itemised payslip, so it’s important that everyone understands them, Employers and Employees alike! Unless you are genned up on the ins and outs of gross salary, income tax, allowances, Workplace Pensions and National Insurance it may look like a confusing bunch of numbers, especially if you’re a worker receiving payslips for the first time but understanding payslips is easier than you might think. In this article we provide a basic guide to payslips:
- Who should be given payslips
- Understanding the various codes and figures.
Who should receive payslips?
Anyone who works on an employed basis, i.e. the employer has accepted the responsibility of paying the worker’s income tax and National Insurance on behalf of the worker, before wages are handed to them (known as PAYE – Pay As You Earn). This is regardless of what an employee does or how many hours they work.
A worker does not require payslips if they legally work on a self-employed or freelance basis. In this case the worker provides the “client” (who otherwise would be the employer) invoices for a gross wage. The self-employed/freelance worker is entirely responsible for their income tax, National Insurance contributions and any pension schemes, and will fill out a self-assessment form at appropriate times each year. In this case the client is not responsible for any unpaid tax and is not required to provide payslips.
If you aren’t sure whether you’re working or “employing” on an employed, self-employed or freelance basis, both parties must discuss and decide on the arrangement going forward. Failure to do this can get you both into very hot water! You can find out more in our article The difference between Employed, Self-Employed and Freelance Grooms by clicking here.
Why is it so important that employees receive payslips?
It’s imperative that employees receive payslips as proof of wage, income tax, National Insurance, Workplace Pension and any other allowances paid.
Abiding by employment law is a two-way street. It is not solely the employers or the employees responsibility to ensure that correct tax and National Insurance is paid, that payslips are issued, that a workplace pension is provided and administered correctly… both parties must understand workers rights and basic employment law. For example, if a worker is accepting cash in hand the “tax man” is unlikely to see that as entirely the employers liability – it is likely to be seen as tax evasion by both parties.
Payslips and the Equine Industry
Payslips might be something you’d associate with ‘suited and booted’ office workers but, from 6th April 2019, every employee in any industry needs to receive them. In the past a groom might have received a simple slip of paper with that week’s wages owed “for services rendered”, but nowadays everything to do with employment must meet certain minimum requirements. This includes proper, regular payslips provided to the employee before or on their payday, whether they are paid weekly, two-weekly, four-weekly or monthly.
Payslips can still be hand written, but the information displayed needs to meet minimum requirements set out by the Government.
Important changes ahead!
Currently (February 2019) employees are only entitled to receive an itemised statement of pay showing gross and net salary and details of any deductions made. Under new law laid before parliament on Thursday 8th February 2018, The Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018 was passed and comes into force from 6th April 2019.
This means that from 6th April 2019, employers will now have to provide employees who are paid according to ‘time worked’ the details of the number of hours being paid on their payslip each time, for example:
- where the number of hours worked differs from salary period to salary period, or
- the pay scale is different for various types of work performed (for example, if a Groom is paid a higher wage for time spent competition grooming away at shows than for time spent in regular work at home)
From 6th April 2019 payslips must show:
- A single aggregate figure against the total number of hours worked in that pay period
- Separate figures for different types of work, or work completed under a different rate of pay
This is part of the Government’s “Good Work Plan” which is in response to the recommendations made by Matthew Taylor in his “Good Work Report”, known as the “Taylor Review“.
You can read the Government’s guidance on this legislation by clicking here.
What figures can be shown on a payslip?
For the salary period, weekly, bi-weekly, 4-weekly or monthly:
- Total wage, gross (before tax, National Insurance, pension and other deductions)
- Total wage, net (after tax, National Insurance, pension and other deductions have been applied)
- Any proportion of hours worked that are paid at a different hourly rate
- Holiday Pay
- Expenses repaid
- Sick Pay
- Student loan repayments
- Maternity / Paternity pay
- Income Tax for the salary period. This is a percentage of the worker’s annual salary over £12500 (tax year 2019-2020) so this figure will differ from payslip to payslip as it is worked out pro rata. You can read more on income tax and allowances by clicking here.
- Employees National Insurance (NI) for the salary period. The amount paid is a percentage of the qualifying salary (you may see this in the “Year to Date” section of a payslip, abbreviated to “Earnings for NI TD” or “NIC” where the C stands for Contributions). The qualifying salary for National Insurance varies from employee to employee depending on a number of factors. You can read more about National Insurance contributions by clicking here.
- Workplace Pension contribution. Workplace Pensions are now mandatory. You can read more about Workplace Pensions by clicking here.
You may also see deductions for:
- Accommodation provided. Whether you’re an employer or a worker, it’s important that you understand the law regarding deductions from salary for accommodation provided with the job. You can read more about equine jobs with accommodation by clicking here.
- Student Loan. You should only see student loan deductions if you are earning over a certain amount a week (depending on various circumstances). You can read more about Student Loan repayments by clicking here.
- Employers National Insurance contribution (NI). Many employees may not realise that employers actually contribute towards their National Insurance on top of their agreed salary! If this is shown on the payslip you can expect to see abbreviations similar to ER (Employer) and EE (Employee) indicating who has made that contribution.
- Employers Workplace Pension contribution. As with National Insurance, employers have to contribute towards the employee’s Workplace Pension, which may be detailed on a payslip.
- Speak to ACAS about any other deductions applied to ensure they lawful – it’s in NO ONE’S interest to get into hot water over such important matters. You can speak to an ACAS adviser via this website.
Other information shown on payslips
Depending on the type of payslip provided, information also shown includes:
Employee number: This relates to the number of employees working for the employer and how they are logged on the employers PAYE system.
Employee name: Speaks for itself! Employers and employees must ensure the correct payslip is handed out!
Process date: The day the payslip was generated OR the date of pay (pay day!)
National Insurance Number: A worker needs a National Insurance Number in order to pay the appropriate tax and be eligible for state benefits, pensions and allowances. Read more about National Insurance Numbers by clicking here.
Employer Name: Speaks for itself! If a groom works on an employed basis for more than one employer this will be very important!
Employee Tax Code: This relates to how much tax the employee will be charged. You can find out more about tax codes by clicking here.
Tax Period: The income tax year always starts on 6th April every year, and tax is charged according to 12 monthly periods. Unlike our regular calendars, tax periods run with April starting as month 1, May month 2, June month 3 etc, with March being month 12.
Payment Method: How the employee will receive the pay. This might be cash or cheque, but is most likely to be by direct transfer to their bank account, usually by BACS (Bankers Automated Clearing Service).
Payslips may also show the total amount of some or all of the above details that has already been paid for the tax year to date (TD). At the end of March (month 12) employees are given a final payslip for the year, known as a “P60”, which shows totals for all payments and deductions from 6th April to 5th April for the tax year that’s coming to an end. Find out about the end of year P60 document here.
A basic guide to payslips
Payslips may look different to the example shown above, but the information shown on them should be recognisable from the details within this article.
Sources and further reading
The Government website: www.gov.uk
SDWORX Payroll Specialists: www.sdworx.co.uk
The Citizen’s Advice Bureau: www.citizensadvice.org.uk/work
Both employers and employees can contact ACAS for information and advice on any matter regarding employment. You can find contact details for ACAS here.
All information is correct at the time of publishing this article (February 2019). This article offers basic guidelines, and we always advise you to consult financial and pension experts before acting.