Introduction to Income Tax and NICs Gross to net and the pay statement
Gross to net and the pay statement
6.1
The gross to net stage
The payroll calculation begins by identifying total earnings, or gross pay. This can include salary, wages, overtime, bonus payments, statutory payments for sickness or child-related absence, and so on. The next stage is to calculate the values of all the statutory, contractual and voluntary deductions that need to be made. These can include income tax, National Insurance contributions (NICs), pension contributions, deductions for Student Loans, trade union subscriptions, Season Ticket loan repayments, and so on.
The final stage of the payroll calculation is the ‘gross to net’ stage, where the deductions are taken from gross pay to identify the residue – the net pay.
The value of an individual’s net pay and details about the elements that went into the calculation must be provided to the employee on an itemised pay statement, often called a payslip.
6.2
The pay statement
6.2.1 The legal requirements
When a pay statement is to be given
The Employment Rights Act 1996 (ERA) provides that an itemised pay statement must be given to all workers (electronically or on paper) each time they are paid. (Until April 2019, only employees had the right to receive a payslip.)
There are certain exceptions. Police officers, for example, are not entitled by law to receive a payslip.
Details to be shown
Certain basic information is required in this statement, although the details are considerably less than you might expect.
The actual legal requirements are:
Total gross pay
•
• An individual listing of all statutory deductions
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