Payslips explained

From the age of 16, we’ll all have some money taken from our wages – and you’ll see how much on your payslip. Your employer takes these deductions off for you, without you having to do anything. But that means what you take home (your net pay) will be less than the total you’ve earned (gross pay).

Sounds a little depressing doesn’t it? Well, it does at first. But when you take the time to understand where your money is going, and why, you start to realise that these deductions are there to help you now – and in the future.

Payslip basics

There are three things your employer must put on your payslip:

1. Your gross pay (what you’ve been paid before tax and other deductions)
2. All deductions (what’s been taken out)
3. Your net pay (what you’ll take home after the deductions)

Now, where do these deductions go? And why are they good for your future? Let’s take a closer look at the ones you might see on your payslip.

PAYE

This stands for ‘Pay As You Earn’ – it shows how much you’re paying in income tax. This money goes towards government services, like education and the NHS.

You’re allowed to earn a certain amount of money tax free before you start paying income tax. This is called your personal allowance. The example below is based on (2026/27) with a personal allowance of £12,570 per year, check Gov.uk or MoneyHelper for the most updated figures around personal allowances and national insurance.

When you start working, you’ll get a tax code that decides how much is taken from your wages. The basic rate of tax is 20% for salaries up to £50,270. So, how does this all add up?

So if you earned £24K you would take £12,570 away from that, and be left with £11,430. Therefore, you’d pay the 20% basic tax rate on £11,430.

NICs

A compulsory tax you pay if you’re 16+ and earn over £242 a week. This contributes to state benefits such as the State Pension and the NHS. The amount you pay depends on how much you earn, as well as your current employment status.

Your National Insurance number (NINO) will be sent to you just before your 16th birthday. It’s unique to you and makes sure there’s an accurate record of how much you’ve paid in National Insurance contributions.

There are also plenty of online calculators which you can use to help you work out how much you will take home.

Emergency tax code

Sometimes your tax code isn’t right for your circumstances and you might be given an emergency code.

An emergency tax code assumes that you’re only entitled to the basic personal allowance. It’ll mean you’ll pay tax on all your income above the basic personal allowance (£12,570 for 2025/26).

It won’t take into account any allowances or reductions and reliefs you might be entitled to.

This could mean you pay more tax than you should for a short period of time.  Check here for the emergency tax codes for the current tax year. 

You might be put on an emergency tax code if:

• you’ve started a new job
• you’ve started working for an employer after being self-employed, or you’re getting company benefits or the State Pension

If your tax code is one of these, HMRC will automatically update it. But it might mean that for one or two months your pay won’t be the same, so be careful with your budgeting.

How do I check my tax code?

To make sure you’re on the right tax code, check your code matches the Personal Allowance you should be getting. 

How is my tax code worked out?

Your tax code is usually the amount you can earn without paying tax, divided by 10, with a letter added.

For example:

Tax code: 1257L

1257 becomes £12,570 earned before tax.

Check your Income Tax for the current year here.

If you think you might have had Income Tax wrongly taken from your earnings, fill in the R38 form from HMRC to have it paid back to you.

Private pension

When you’re young, the last thing you’re probably thinking about is your retirement. But it pays to plan ahead. Your state pension (supported by National Insurance contributions) will give you some money later in life – but you may want to put some extra money away so you’re even more comfortable. And that’s where a private pension comes in.

If you pay into a private pension, you’ll see these deductions on your payslip. This money will stay with your pension provider until you’re allowed to access it – which is usually when you’re 55 or over (but they’re all different).  Get more information with this article from MoneyHelper on the pension basics.

Student loan

If you study after school, you’ll probably need a student loan to help you pay for your tuition fees and/or living expenses. You can get a student loan at any age – but you’d normally get one when you start further education at 16 or 18.

Then once you earn a certain amount, you have to start paying it back – plus interest. Each month you pay back a percentage of any income over the earning threshold detailed on the repayment plan you are on. So the more you earn, the more you’ll pay back. You’ll be able to see what you’re paying back on your payslip.

Visit the Student Finance on the government website to review the details of the different plans.