Understanding Your First Payslip
Getting your first wages paid, your first payslip is always an exciting time. Payday is the best day of the month. You’ve found a job, and now there’s something about getting your very first paycheck that is extra special.
Whether you’re a recent graduate, just moved jobs or you have just got a promotion, understanding your payslip, what to expect and the details you should double check. It can all get pretty complicated. From there you’ll want to get an idea of what’s the figure you’ll bring home each month after any tax or deductions, and then how to budget your new salary.
All employees and workers are entitled to an individual, detailed, written payslip. It can be on paper or digital. If you’re working freelance though, you won’t need a payslip, and will likely work this out another way, maybe through an invoice.
How to Understand Your Payslip
When you first get your payslip, you might be a bit confused as to what everything means. While a payslip will contain lots of important technical information you need to check, you also really should be checking you’re getting paid the right amount!
There are some bits of information below that you might not find on your payslip as some of these are circumstantial, and other information is based on if the employer decides to show such information.
What Information Should Your Payslip Contain
- Personal Details: name & sometimes your home address
- Payroll Number: some companies use these to identify individuals on their payroll
- Date: the date on which your pay will be credited into your bank account
- Tax Period: a number representing the tax period for that payslip
- Tax Code: sent to you by HMRC, your tax code tells you and your employer how much tax free pay you should get before deducting tax.
- Make sure your code is correct, in line with your most recent tax code notice, or you could end up paying too much or too little tax.
- National Insurance Number: your NI number will stay the same throughout your lifetime, used to make sure all your contributions are recorded properly
- Gross Pay – Wages, Hours Worked, Bonus and Commission: This is your full pay before any tax, National Insurance or other deductions have been taken off.
- If you get paid per hour, the amount of hours you have worked and your hourly rate. Your payslip can also show any extra pay that you have received on top of your basic wage, including bonuses, commission and overtime worked.
- Net Pay: this is the total amount of take home pay you will receive after all deductions have been taken.
- Summary of the Year: a summary of your earnings, tax, NI, student loan repayments & pension contributions so far within the current financial year.
- Deductions: any deductions taken from your gross pay are often outlined separately on your payslip.
- Expenses: any work expenses you incur might be noted on your payslip if owed to you through your payroll.
- Deductions: any deductions that have come off your pay, like tax or NI contributions
- Pensions: both yours, and your employers pension contributions will be noted.
- Student Loan Repayments: if you have a student loan, and are eligible to make repayments, these are also noted.
- Sick Pay: most likely highlighted as a separate figure so you can see exactly how much sick pay you will receive vs your standard earnings.
- Maternity, Paternity & Adoption Pay: if you meet certain conditions to receive this sort of pay, these are often highlighted as a separate figure.
- Workplace Benefits: if you get health insurance through your company, or have a company car, then these will be listed. Note these can also affect your tax code.
- Court Orders & Child Maintenance: a court can make deductions directly from your wages. This can include any unpaid fines or any debt that you have to pay off or Child Maintenance Service payments.
What Is A Tax Code
When you start earning money, your tax code is super important to keep an eye on. But you’re probably wondering what a tax code actually is. It’s a code provided to you by HMRC, and is used by your employer to work out how much variable deductions you need to pay, like your tax and NI contributions. People have different tax codes depending on their circumstances, with a tax code and the amount of tax you pay will depend on:
- Your income
- How much tax you have already paid that year
- Your tax free personal allowance
Remember to check your tax code against your most recent tax code notice from HMRC. If your tax code on your payslip is incorrect, you might end up paying too much, or too little tax.
How to Calculate Your Take Home Pay
It can be hard to know how much you’re exactly going to be taking home with you. Your paycheck will note down all deductions that are made from your pay, and where those amounts are being directed towards.
The easiest way to predict how much your take home pay before you start working somewhere, is by using an income Tax Calculator. Money Saving Expert have a great calculator for this. This lets you see exactly how much you will be taking home with you. For example if you earn a salary of £30,000, then you will take home just under £24,000.
What Deductions Are Taken From Your Pay?
Most people think of tax as a single deduction to have to worry about, but sadly there are a few more deductions that will be made from your net pay. Consider the below, and when checking your payslip, refer to your gross pay for the amounts you’ll be bringing home every week.
- Income Tax
- National Insurance
- Pension Contributions
- Student Loan Repayments
Any deductions or pension contributions will be looked after automatically by your employer. So you will never have to worry about organising tax or pension contributions yourself.
It’s always worth double checking these once you receive your first paycheck, and make sure everything is going where it needs to go. Double check your details direct with Gov Income Tax Account, National Insurance Contributions, and the Student Loans Company. Check your pensions contributions with the pension provider organised by your employer.
How To Manage Your Wages & Salary
Your earnings have to go towards paying a lot of things. You need to pay for your living expenses, your social life, paying off any debts you have, and maybe even working towards your financial goals. The challenge you have is to be able to portion off your salary to pay all these different things every single month.
Set Yourself A Monthly Budget
When you first get your paycheck, consider setting a budget for the month ahead, so you know exactly what you can afford beyond this, and if you can save any money once everythings accounted for.
Take into consideration all your outgoings you have: rent, bills, cost of running a car etc. Then you can begin to factor in a rough idea of your spending towards food, drink, and social life. Then you can see much you want to put into savings, which you know you’ll need one day. For a new car, a deposit on a house in the future, or for any emergency funds.
Now you can visualise exactly how much you have left over for the month, so you can see how much you have left to treat yourself. We know it’s important to save money, but your life doesn’t need to revolve around saving every last penny.
Budgeting helps you make sure that you aren’t spending above your means. It gives you a bit of comfort that you won’t end up running out of money before the end of the month. Think about budgeting a tiny bit more than you are likely to spend, to keep you safe just in case your spendings go slightly over what you expected. Unexpected costs can come out of nowhere throughout the month.
Budgeting Apps & Bank Accounts
If you’re thinking this is a bit of a struggle, maybe think about opening a Monzo or Starling account. With either of these current accounts you can set monthly budgets, assign money to different savings pots, and quickly visualise how your month ahead will look, and how much money you’ve got to play with.
Set Up A Savings Account
Consider starting a savings account, and set aside a regular amount every month. Maybe set up a direct debit so you have to pay the same amount into your savings account each month. Remember to think about any big costs coming up, like a holiday, or if you’re moving flat. If that sounds a bit too much to cope with, just make sure you save enough to keep some emergency funds to one side.
Have a look and see if your bank has a ‘Save the Change’ or ‘Round Up’ option that will automatically save any change for any purchase you make. So when you spend 99p, the last penny to make the whole £1, will be saved in a little virtual piggy bank. As everyones grandma always says, look after the pennies and the pounds look after themselves.
Pay Into A Pension
Now this is a very grown up thing to do, but it might be time to pay into a private pension scheme. Most jobs will offer you the opportunity to sign up with a private pension. If you sign up, any contributions will automatically be deducted from paycheck each month, all organised by your employer.
We think it’s a great idea if you can afford it. It’s always a good idea to start saving for the future. Your employer should tell you what type of scheme your company uses and who runs it. From there you can do some research into the pension scheme yourself, and decide what’s best for you. With pensions, the longer you contribute and invest your money, when you come to retire, the compound interest applied will provide the best opportunity for you to benefit. It’s entirely up to you though, so do the research, and find what feels best.
Invest Your Money
You know what they say, you gotta spend money to make money. If you have any knowledge of investing, then this is a great way to look after your money, and watch it grow. If you’re considering investing, please please please do your research. It can be an investment into the stock market or it could even be a property investment.
More Advice on Finding a Job
Happy spending with your first paycheck! Just remember that budgeting is key and to not blow your first paycheck within the first week after getting paid! If you’re still unsure If you’re wondering how to find a job, and the best places and ways to apply, have a look at our How to Get a Job Guide For Students. When you’re ready, find your next job interview with our Jobs Finder. And if you’re going for the Highest Paid Jobs around, Click Here to find yours now. Want to reject the idea of a job altogether, there’s loads of other ways you make money during your time at Uni, check out our Make Money Hub for all the ideas!