How to Read Your Payslip: Every Line Explained (2026/27)

How to Read Your Payslip: Every Line Explained (2026/27)

Your payslip is a legal document that your employer must provide on or before your pay date. Yet surveys consistently show that the majority of employees do not fully understand every line. This matters: payslip errors are common, and the consequences — overpaid tax, wrong pension deductions, or incorrect NI — can cost hundreds or thousands of pounds left uncorrected.

Your Legal Rights Regarding Payslips

Every employee and worker (including agency and zero-hours employees) is entitled to an itemised payslip. It must show:

1. Gross pay before deductions
2. All variable deductions itemised
3. Net pay — what you receive
4. Fixed deductions (if any) by amount and purpose on request

Electronic payslips are valid. If you are not receiving payslips, this is a legal violation — contact ACAS at 0300 123 1100.

Example Payslip: £36,000 Annual Salary

Line-by-Line Breakdown

Gross Pay / Basic Pay Your contractual salary divided by 12 (for monthly pay). If you are hourly, it is your hourly rate multiplied by hours worked. If part-time, it is pro-rated.

Watch for: The figure not matching your expected salary — especially after a pay rise that hasn't been applied, or if overtime or commission has been incorrectly calculated.

Tax Code The most important number after net pay. Standard code for 2026/27: 1257L.

The number in your code × 10 = annual tax-free allowance. 1257L = £12,570 tax free; 1357L = £13,570 (additional allowance from expense claim).

Income Tax Calculated on a cumulative basis — each month HMRC calculates the total tax due year-to-date, subtracts what has already been paid, and deducts the remainder. This is why monthly amounts can vary slightly even on a fixed salary.

Employee National Insurance Calculated independently each pay period (not cumulative). At 8% on earnings between £12,570 and £50,270, then 2% above. Monthly NI thresholds: £1,047.50 (Primary Threshold) and £4,189.17 (Upper Earnings Limit).

Pension Contributions Three types appear differently on payslips:

Salary Sacrifice: Reduces gross pay before tax and NI are calculated. May not show as a separate line — gross pay will simply be lower. Check your pension portal for contribution confirmation.

Net Pay Arrangement: Your employer deducts your contribution from gross, then calculates tax on the reduced amount. Shows as a deduction.

Relief at Source: Deducted from net pay; pension scheme claims basic rate relief from HMRC. The deduction shown is your net contribution (80p per £1 going to pension).

Student Loan Deductions Deducted via PAYE based on HMRC's notification to your employer. Repayment thresholds for 2026/27:

Common Payslip Errors to Check

Year-End Documents

P60: Issued by 31 May — your total annual earnings and tax deducted. Keep permanently for mortgage applications and tax queries.

P45: Issued when you leave — provides year-to-date figures to your next employer. Provide immediately to avoid emergency tax.

P11D: Issued by 6 July if you receive taxable benefits in kind (company car, private medical insurance). Increases your taxable income.

Understanding Cumulative PAYE

Because PAYE is cumulative, an unexpected variation in your monthly net pay is usually nothing to worry about. If you started mid-year with lower initial earnings, your early-year tax deductions will be lower, self-correcting as the year progresses. If you receive a large bonus, subsequent months may show lower tax deductions as the system rebalances.

The important figure is your year-end total, confirmed by your P60.

Frequently Asked Questions

Q: My net pay was lower this month with no salary change — why? Check your tax code. HMRC updates codes in-year when benefits or prior underpayments are discovered. Also check if it's the first month of a new auto-enrolment pension or if you've entered a new NI calculation band.

Q: I was emergency-taxed in a new job — how do I get a refund? Provide your P45 immediately. Your employer's PAYE system will recalculate year-to-date and refund the overpayment through subsequent payslips. If the year ends before correction, HMRC issues a P800 refund automatically.

Q: My employer shows pension contributions — whose money is it? Both yours and your employer's contributions belong to you, but are locked in the pension until access age (55, rising to 57 in 2028). The employer's contribution is on top of your salary — not taken from it.

Q: What does NI code "Category A" mean? NI category letters classify the type of NI contribution. Category A is the standard rate (most employees). Category H is under-21, C is State Pension age, M is under-21 also. These affect which rates apply to your employer's NI, not usually your own deductions.