Back to basics: payslips explained

Ah payslips, that all-important document outlining your recent pay.

However, despite being such an important document, very few of us even check our payslips.

Once we see the notification from our bank that we have been paid, we assume everything is okay.

Does this avoidance come from a lack of understanding? What if everything isn’t actually okay?

It’s vital employers address this trend by educating employees on their payslips, what they mean and how to decode them, so they are financially empowered and able to effectively raise queries if problems occur.

Not sure where to start? Look no further!

We have recapped everything people need to know about payslips (employers, feel free to use this as a checklist)!

What is a payslip?

Payslips are essential documents given to employees on or before each payday, detailing their total earnings after deductions such as taxes and National Insurance (NI).

Sometimes referred to as pay stubs, paychecks or pay advice, payslips outline key information like:

• Tax withholdings
• Reimbursements for work-related expenses (e.g., mileage or travel costs)
• Deductions like insurance and pension contributions
• Employer contributions toward insurance or pensions

Payslips may also contain additional details, such as accrued or used leave.

Traditionally, payslips were physical documents attached to checks or enclosed in wage envelopes.

However, in today's digital age, electronic payslips have become the norm.

Note: payslips can serve as proof of earnings, taxes paid and any pension contributions.

Do employers need to provide a payslip?

Yes, in most cases, it's against the law to not provide staff with their payslips on or before their payday.

However, there are exceptions:

• Contractors/freelancers
• Police service members
• Merchant seamen
• Masters or crew members engaged in share fishing (paid by a share in the profits or gross earnings of a fishing vessel)

Note: businesses can choose to provide payslips in either a digital or print format.

When should an employee receive their payslip?

In the UK, employers are legally required to provide employees with a payslip on or before their payday.

What information should be on a payslip?

An employee's payslip must include the following details:

• Gross Pay: the total earnings before any deductions
• Net Pay: the take-home salary after both fixed and variable deductions
• Variable Deductions: items such as income tax and National Insurance that may vary from one payday to another
• Fixed Deductions: consistent deductions like season ticket repayments or union dues
• Amount and Method of Part Payment: separate figures for cash payments and the remaining balance credited to a bank account
• Hours Worked: if your pay varies based on hours, include the number of hours worked

Payslips can also include additional information such as the National Insurance number, tax code, rate of pay and the cumulative total of pay and deductions for the tax year, although these are not mandatory.

Guide: Electronic payslips - why you need to ditch the paper

Download here

Understanding your payslip  

When was the last time you closely examined your payslip?

Even if you have recently, did you fully understand all the details?

We're here to help! Below is an example payslip; we've numbered and detailed the various elements you're likely to find.

1) Employee number

Also known as a payroll number, an employee number is assigned to each worker by their employer to identify them during the payroll process.

2) Personal details

Payslips typically include personal details such as names and sometimes even home addresses.

3) Date

The date featured on your payslip generally refers to when the salary will be paid to employees' bank accounts.

4) National Insurance (NI) number

HMRC provides every employee with a unique National Insurance (NI) number to distinguish workers from each other and help ensure tax and National Insurance contributions are correctly recorded.

5) Gross pay

This shows earnings before any taxes, contributions or other deductions are applied.

6) Tax period

The year is divided into different tax periods, determining the tax and national insurance thresholds applicable.

7) Tax code

The tax code informs employers of an employee's tax-free income entitlement before taxes are deducted.

8) Deductions

This section shows the deductions from gross pay, including tax and National Insurance + if staff are contributing to a workplace pension, they'll find the amount they're adding here.

9) Year-to-date (YTD) earnings

Certain payslips will display earnings and deductions paid for the current financial year.

10) Pay method

The pay method refers to how the employee will be paid; for example, cash or direct debit.

11) Net pay

This shows the amount an employee takes home after all their deductions.

Common payslip terms

Here’s a breakdown of some other common acronyms found on payslips.

BACS

BACS stands for Bankers Automated Clearing Services - the electronic system which facilitates payments directly from one bank account to another.

SSP

SSP refers to Statutory Sick Pay which is provided when staff are unable to work due to illness for four consecutive days or more.

SMP, SPP, SAP and ShPP

These are various forms of parental pay:

• Statutory Maternity Pay (SMP)
• Statutory Paternity Pay (SPP)
• Shared Parental Pay (ShPP)
• Statutory Adoption Pay (SAP)

BA

Bereavement Allowance (BA) is a weekly benefit for widows, widowers or surviving civil partners.

CHB

Child Benefit (CHB) can be given to parents with children under 16 or under 20 if they stay in approved education or training.

Paper payslips vs electronic payslips

Switching to digital payslips eliminates the need for printing and distribution, conserving paper, cutting postage expenses and reducing labour costs.

According to a survey by the Chartered Institute of Payroll Professionals (CIPP), 83% of respondents reported cost savings with the adoption of online payslips.

Every payday involves numerous variables, making manual input time-consuming and repetitive.

Therefore, utilising payroll software to create digital payslips and automate a crucial part of the payroll process is immensely beneficial, saving both time and money.

Should you email your payslips?

Distributing payslips via email was once a popular alternative to traditional paper distribution.

However, the Google Inc. vs. Vidal-Hall court case highlighted the risks associated with this method.

If payslips are intercepted after being emailed to your workforce, employees could have legal grounds to take action against your business, even without a financial loss.

Here are the top four reasons to avoid emailing payslips:

1.     Email security concerns: email is inherently risky, compromising the confidentiality of payslip information.

2.     Discrepancy with financial institutions: financial institutions avoid emailing bank statements, underscoring the questionable security of emailing payslips.

3.     Risk of data protection breaches: emailing sensitive information like payslips can lead to breaches of data protection regulations.

4.     Challenges in tracking emailed payslips: managing and tracking emailed payslips can be difficult, potentially causing significant inefficiencies.

Making payslips simple

Businesses have a few options to make payslip distribution simpler.

With software, such as IRIS My ePay Window, you can toss out the paper hassle and bring your payslips, P60s and other payroll documents into the digital world.

Once the payslips are digitally sent, employees can hop into the portal securely from wherever to check out their payslips, old and new, using a computer or mobile device.

Learn more about IRIS My ePay Window here.

Alternatively, payroll outsourcing providers, such as IRIS Fully Managed Payroll, handle the distribution of digital payslips from start to finish as part of their offering, completely removing the burden.

Learn more about IRIS Fully Managed Payroll here.

Guide: A complete guide to payroll outsourcing solutions

Download here