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Is your payslip correct?

Everyone should have an interest in payroll documentation, but could you check or reconcile the figures with your annual P60?

Words Gill Myers, Evolve

Illustration showing a woman holding a giant pencil over her shoulder as she examines a large payslip in front of a outsized computer monitor.

Any organisation with employees must operate a payroll system, which includes keeping records and submitting information and paying taxes to HMRC. Operating payroll also involves making statutory, and sometimes non-statutory, deductions from employees’ gross pay and issuing documentation such as payslips and P60s.

Payslips

You must be provided with payslips by your employer. They don’t have to be printed but could be emailed to you or uploaded to a secure portal that you log on to. They are proof of your earnings, tax paid and pension contributions, so are important documents to have.

As a minimum, a payslip must show:

Earnings before and after any deductions

The amount of any deductions that may change each time an employee is paid – for example, tax and National Insurance

For hourly paid employees, the number of hours worked

Understanding amounts owed to HMRC

A payslip will show how much your employer owes to HMRC on your behalf, which will be a combination of:

Income tax	Tax paid on money earned from employment
National Insurance Contributions (NICs)	Tax paid that contributes to the cost of state benefits and pensions
Student loan repayments	Deductions made to repay tuition fees, maintenance and postgraduate loans if applicable

These amounts will be paid through the pay as you earn (PAYE) system, which means they are deducted by employers from salaries/wages before you get paid.

However, your employer will also owe HMRC NICs of its own. These are based on employee remuneration but may not be shown on payslips as they are an employer, not employee, tax. To help small businesses with the cost of their NICs, they can claim Employment Allowance. This is deducted from the employer’s NICs figure until the annual threshold is reached. Once the allowance has been used up, employers will have to pay their full NI liability.

Calculating amounts owed to HMRC

Let’s imagine we have the following summary of a weekly payslip:

PAYE	£35.00
Employee NICs	£20.98
Employee pension	£16.67
Student loans	£0.00
Net pay	£344.15
Employer NICs	£30.29
Employer pension	£15.26

From the summary, we can calculate that HMRC is owed £86.27. This is a combination of the tax (PAYE) and NICs that have been deducted from the employee’s earnings, as well as the employer’s NICs. If the employer still has some of its Employment Allowance – for example, £468 – that would mean £30.29 of it would be used to reduce the liability to £55.98 (£35 + £20.98 + £30.29 - £30.29).

P60 year-end certificate

A P60 shows how much pay an employee has received and how much tax, both PAYE and NICs, they have paid in a financial year. Just like payslips, a P60 must be given to employees, who may use them to reclaim overpaid tax, apply for tax credits or as proof of income when applying for a loan or mortgage.

The information on a P60 should reconcile with the information on a year’s worth of payslips. However, this can be complicated if you change jobs or have more than one, as you should get a separate P60 for each job every year.

Reconciling gross pay to P60

The following fictional extract from a P60 shows pay ‘in this employment’ of £14,350. This is different to the amount our imaginary employee received during the financial year from the employer, which was £11,880.89.

Table showing the layout of a payslip and the information it contains.

However, they only started working for the company five months ago for an annual salary of £36,000 that is paid in equal monthly instalments. They joined the company’s pension scheme straight away and make monthly contributions of £120, while the company also contributes £86.25 each month. The employee contributes £10 per month to charity through the payroll giving scheme.

The employee’s gross pay can be reconciled to the amount shown on the P60 by prorating it to calculate their gross pay for the year from their current employer (£36,000 ÷ 12 x 5). Five months’ worth of pension contributions and payroll giving will also need to be deducted from their gross pay to calculate their taxable gross pay – in other words, the amount shown ‘in this employment’ on the P60:

Gross pay	£15,000.00
Employee's pension contribution	-£600.00
Payroll giving	-£50.00
Taxable gross pay – per P60	£14,350.00

We can reconcile the figures further using the income tax and NICs. These are also shown on the P60 as ‘tax deducted in this employment’ and ‘employee’s contributions due on all earnings above the primary threshold (PT)’. Deducting both forms of tax from the taxable gross pay figure reconciles the net pay of £11,880.89:

Taxable gross pay – per P60	£14,350.00
Income tax	-1,483.47
Employee's NIC	-£985.64
Net pay	£11,880.89

KEY TAKEAWAYS

Understanding the principles of payroll allows you to perform useful calculations and reconciliations. If you don’t work in payroll, knowing what documentation employers are required to give their employees allows you to ask for them with confidence and appreciate the information they contain. If you do work in payroll, it enables you to ensure you comply with statutory requirements.

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