Graduate payslips – where did all your money go?

Graduate salaries droppingDECODE THE NUMBERS – AND MAKE SURE YOUR BOSS’S SUMS ARE RIGHT

By guest blogger Elizabeth Grey

The long-awaited day is finally here: your first graduate wage packet has landed. After you’ve got used to seeing such a healthy looking bank balance and then recovered from the shock at realising just how quickly it disappears, it’s time to get to grips with what your graduate payslip means.

It might be tempting to dismiss it as series of borderline incomprehensible hieroglyphics, but learning to decipher what your payslip means is essential. And it’s worth checking the numbers are correct and the maths adds up. Every year, thousands of people face bills for underpaid tax or need to claim a rebate as they’ve paid too much. Here, we answer your questions about payslips…

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What’s the point of a payslip?
Your payslip lets you know exactly how much you’re getting paid and how much of your money is getting deducted at source (straight from your employer). It acts as proof of employment – and landlords, banks or loan providers often want to see these before entering into an agreement with you.

I don’t have a payslip. Should I?
Yes. Employers have a legal obligation to provide you with payslip, even if you’re a temporary or contract employee. Talk to your payroll department if you haven’t received one.

What am I looking at? What are all these numbers?
The basic figures on every payslip are:
Gross pay –  Your pay packet before any deductions
Payroll number – A unique number used inside your organisation to identify staff members
Tax code – Issued by HM Revenue and Customs (the tax collectors), this determines your tax rate
Tax period – The time period covered by your payslip
Net pay – Your take-home pay after all deductions and adjustments

I’ve been robbed! Why is my net pay so much smaller than my gross pay? 
These are ‘statutory deductions’. When you open first payslip, these are the numbers that might have you double checking the figure on the bottom line in disbelief. There are several different deductions you need be aware of.

What is income tax?
This is likely to be the biggest deduction from your payslip. Everyone born after 1948 can earn up to a certain thresholdwithout paying income tax. For the 2014/15 tax year, it’s £10,000. Between £10,000 and £31,865 you pay income tax at 20%, between £31,866 and £150,000 you pay it at 40% and above £150,000 at 45%. If your deductions seem to be unusually high, check that you’re not on emergency tax. You can either ask your payroll department to check your tax code or call the HMRC Income Tax helpline directly.

What is National Insurance?
Although it might feel like just another form of income tax, your National Insurance contributions pay for the NHS and also build up your entitlement to state benefits. The main one is the State Pension, for which you’ll need 35 years of contributions to get the full amount. Other benefits it affects include Jobseekers Allowance, Employment and Support Allowance, Maternity Allowance and bereavement benefits. You pay National Insurance if you earn more than £7,956 a year, at a rate of 12% on earnings between the lower threshold and £41,865, and at 2% above that figure.

How are my student loan repayments calculated?
As an employee, your student loan repayments are deducted automatically by HMRC. It’s worthwhile comparing your payslips with your Student Loan Company (SLC) statements to check that they match. How much you pay as a percentage of your payslip depends on the agreement in operation when you graduated. For recent graduates, you pay 9% of your income once your annual earnings pass £21,000. You can also make additional payments directly to the SLC if you want to clear your debt faster.

Do I really need a workplace pension? Can’t I keep more of my money and worry about my pension later?
Depending on whether or not your company is in the auto-enrolment scheme, this may or may not be an obligatory deduction. If it’s not yet compulsory for you to sign up to your company pension, it might seem tempting to skip signing up. However think carefully before you decline, as experts expect the state pension’s value to decline and you currently need £340,000 in your pension pot to receive enough for a basic standard of living in your retirement. All companies must have auto-enrolment in place by April 2017.

There are a few other deductions here too…
Child support? If you have a child and are the non-resident parent, child support payments may be deducted directly from your pay packet. You might also see a ‘workplace loan’. This isn’t a statutory deduction, but if your employer offers season ticket or bicycle loans, where they cover the upfront cost and you repay it in instalments, often interest-free, you can expect to see these deductions on your payslip. Other deductions you might spot could be your union dues (if you’re a member of your union) or your corporate gym membership. Always ask your payroll department if you’re unclear on what a deduction relates to.

Have more questions about your finances – or are you feeling strapped for cash? Visit Graduate Fog Money for more advice and discussion about how to save (and spend) your pennies.

AUTHOR BIO: Elizabeth Grey is a freelance writer specialising in careers and money. This is her website – and you can follow her on Twitter @ej_grey

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