Payslips explained
For something as universal as a payslip, a lot of us don't know how to read one.
👋🏼 everyone,
Is it just me, or does opening your payslip (whether it's a physical payslip or logging into your HR platform) give you a flurry of anxiety?
Well, if that's the case, you're not alone.
Our work and personal lives can change frequently, and that means our payslips can change too - getting a new job, a promotion, setting up a healthcare plan, increasing your pension contributions. These are just some of the things that can trigger a change in your payslip.
So it's surprising how few of us can confidently say that we understand every part of our payslip.
With that in mind, this week I'm going to take a little deep dive into payslips and what each component means, so that the next time you face a payslip change you can be fully clued up and use this post as a guide.
I’ll be covering:
📝Payslip tear-down - looking at an example payslip, I’ll break each section down into plain english
Payslip abbreviations decoded - there is likely a lot of abbreviations on your payslip and I am going to cover what they all mean
🆘 Important tax codes - common tax codes and their meanings so you can quickly figure out which one you fall into
Of course, payslips vary a lot depending on territory, so today I’ll start by covering the 🇺🇲 and the 🇬🇧
US 🇺🇸 payslips (scroll down for 🇬🇧)
Here is an example of a payslip, which I will use as a guide for explaining the meaning of each element.
OK, so here we go…
Your details 📝 - the payslip should contain basic identifying information, including the employer's name and address, the employee's name and address, and the employee's social security number.
🕰️ Time period that that the payslip is referring to - this should be specific and tell the employee the number of hours or days worked in the specific period that the payslip is in reference to.
Benefits 🌴🤧 - not all payslips show this information. Instead, you may need to log in to your HR portal, but sometimes payslips will show any holiday taken/left and the same for sick pay.
Deductions (voluntary) 🏥 - these are deductions that might be for things like pensions i.e. paying into your pension pot for the future or you might have a health plan / insurance that you pay for etc.
Involuntary deductions 🥹 - sadly these deductions are not in your control - these will be federal and state taxes mainly.
Gross pay ✍🏼 - Gross pay is the total amount of money you earn before any money is taken out for taxes or other deductions. It's the total income you receive from your job before anything is subtracted.
Net pay - the money you’re going to party with* - Net pay is the amount of money you take home after all the deductions, like taxes and other withholdings, have been subtracted from your gross pay. It's the actual amount of money you receive in your pocket or bank account.
*pay bills, mortgages, food
😵💫 Payslip abbreviations decoded
Sometimes you'll see some acronyms sneak into the earnings section of your payslip - usually this is good news as it's money coming your way (before tax), but if you don't know what it means you're likely to be left scratching your head or emailing your payroll team.
Let’s break these into two categories - Earnings & Deductions
💰Earnings abbreviations
Add Pay — Additional pay
BRVMT — Bereavement pay
Cmp Pyot — Compensatory time payout. Just to expand on this one a little - an example of a compensatory time payment would be when an employee has accumulated extra hours of compensatory time off (comp time) and chooses to receive payment for those hours instead of taking time off.
CNT Pay — Contract pay (or your salary)
Hol — Holiday pay
Jury — Jury duty pay
Misc — Miscellaneous pay
Move Rem — Move reimbursement
OnCall — On-call pay
PTO — Personal/paid time off
Sick — Sick pay
SignOn — Sign-on bonus pay
Severanc — Severance pay
TuiReimb — Tuition reimbursement
Vac — Vacation pay
YTD — Year-to-date earnings
📉 Deduction abbreviations:
FICA — Med — This refers to the Federal Insurance Contributions Act — Medicare that you contribute 1.45% of your pay to.
FICA — SS — This refers to the Federal Insurance Contributions Act — Social Security that you contribute mandatory Social Security payments to.
Fed/FWT/FIT/FITW — Federal tax deductions
St Tax/SWT/SIT/SITW — State tax deductions
Local Tax — Local/city tax deductions
🕵🏼 And finally on the abbreviation side of things, outside of tax deductions, there’s a few others you may come across depending on your situation:
401k/Ret — 401k or retirement deductions
DCR — Dependent care reimbursement
Den/Dental — Dental premium
INS/MED — Insurance or medical insurance
FSA — Flexible spending account
HCR — Health care reimbursement
HSA — Health saving account
LTD — Long-term disability withholding
STD — Short-term disability withholding
VIS/Vision — Vision premium
🇬🇧 UK payslip example
OK, so if you’re based in the UK, then let’s use this sample payslip as a way to get to grips with each component
General details 📝- your name, and sometimes your home address. And things like date and company name. Importantly, it will also have your NI (National Insurance) number. You need this to be able to work in the UK.
💷 Payments - your base salary, but also can contain things like bonuses, expenses or any other payments e.g. below it shows that cash was paid for a gym subsidy.
🚨 Tax code - this is super important. The code tells your employer how much tax-free pay you should get before deducting tax from the rest. If the code is wrong, you could end up paying too much or too little tax. So it’s important to check this against your latest tax code notice (see below for more on tax codes).
🔢 Voluntary and involuntary deductions - this includes non-negotiable deductibles e.g. income tax, national insurance and student loads (and others like court orders and child maintenance), but also includes voluntary deductions e.g. pension contributions.
Net pay - the amount of money you take home after all the deductions, like taxes and other deductions, have been subtracted from your gross pay. It's the actual amount of money you receive in your pocket or bank account.
What do the letters on your tax code actually mean in the UK?
This list from Raisin is a super helpful summary of what each letter means:
Thank you very much for reading 🙏 if you found this helpful and enjoyed the post, I’d be super grateful if you could hit the ❤️ below - thank you! And if you have topics you’d like me to explain just hit reply and let me know.
DISCLAIMER: None of this is financial advice. Concepts of Finance newsletter is strictly for educational purposes.