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A Glossary of Payroll, the Payslip & Deductions Terms

Payroll

For an employer, payroll is the financial record of gross pay, such as salaries and bonuses, and deductions, including tax and national insurance contributions. A payroll system enables the employer to organise these financial records, to calculate the deductions and to generate the appropriate paperwork.

Payslip

Payslip is a slip of paper given to the employee each time they are paid. It can be on any type of paper, but it must show the gross pay (before tax is taken off), details of all deductions, including tax and National Insurance. It must also show the net pay, after all deductions.

Gross Pay

Gross Pay is the total pay before taking off tax, national insurance and any other deductions. Gross Pay can include salary, overtime, holiday and sick pay, bonus, commission and other payments.

Deductions

Amounts of money taken off the gross pay for tax & National Insurance. Deductions may also include other items such as staff contributions to a pension scheme.

Tax (income tax)

Tax for PAYE (pay-as-you-earn) is an amount collected by employers when making salary or wage payments to employees on behalf of HM Revenue & Customs(HMRC). The amount deducted is paid to HMRC and is, in effect, a provisional payment of tax on the employee's income. The amount withheld is determined by tax tables that determine the amount of tax to be deducted for the salary or wage paid to the employee.

National Insurance Deductions

National Insurance is a compulsory deduction of a fixed percentage of an employee’s earnings, allowing access to benefits and services such as the National Health Service (NHS).

Net Pay

Net pay is the amount of money actually paid to the employee on pay day. It is the gross pay, minus all of the deductions.

Pay Cheque

Traditionally this has been the cash or cheque received by an employee for services given to an employer. Over time this has generally been replaced by bank transfers from the employer into the employee’s bank account.

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