Understanding Your Payslip

By Priya Sharma · Updated 12 June 2026

Your first month in a graduate job ends with a payslip, and the number at the bottom is smaller than you expected. Sometimes a lot smaller. The annual salary you agreed at interview is the before picture; what lands in your account is what is left after PAYE income tax, National Insurance and any student loan repayment come out.

It is worth learning to read the thing properly, partly so you can budget on real numbers, and partly because payroll mistakes happen and the person who catches a wrong tax code early saves themselves months of overpaying. This guide walks through each line.

The anatomy of a payslip

Every company lays its payslips out differently, but the legal requirements for what must appear are the same, so you will always find three areas: your details, payments in, and deductions out.

Payments (gross pay)

Usually the left-hand column. This is everything you earned before anything is taken off: your basic salary for the month, any overtime, any bonus or commission if your role pays it, and any expenses your employer is paying back to you. Expense reimbursements are usually tax-free, which is why they sit in their own line rather than being lumped into salary.

Deductions

The right-hand column, and the reason your take-home pay is smaller than your salary divided by twelve. The big four are PAYE income tax, National Insurance, your student loan repayment if you earn enough to make one, and your pension contribution.

Net pay

The number at the bottom, and the only one that matters for budgeting. This is what actually arrives in your bank account. Budget from this figure, never from your gross salary.

Decoding your tax code

Your tax code is the short string of numbers and letters, usually in the top header of the payslip, that tells your employer how much tax to deduct.

The standard code: 1257L

For the current tax year, the most common code for a graduate with one job and no special circumstances is 1257L. It means you have a tax-free personal allowance of £12,570 a year and only pay income tax on earnings above that. The 'L' just means you get the standard allowance.

Emergency tax codes

If you see 1257 W1, 1257 M1 or 1257 X, you are on an emergency code, which usually happens when HMRC did not get your income details in time for your first payday. You will pay more tax than you should for that pay period, and it normally corrects itself once HMRC's records catch up. You can check your code any time on the GOV.UK website.

National insurance (NI)

Income tax is worked out across the whole year. National Insurance is not: it is calculated on each pay period by itself. So if a bonus lands in one month, your NI spikes that month and settles back down the next.

You need a National Insurance number to work in the UK. It ties your contributions to your name, which is what builds your entitlement to certain state benefits, including the State Pension. Lost yours? It is in your personal tax account, or on the official government portal.

The graduate tax: student loans

If you took out a loan for university, you will see a deduction labelled 'Student Loan' or 'CSL'. You never pay the Student Loans Company directly; the repayment is taken automatically through the tax system, the same way as income tax.

You repay a percentage of what you earn over a threshold, and the threshold depends on your plan. Plan 1 is broadly for students who started before 2012. Plan 2 covers starts between 1 September 2012 and 31 July 2023, which makes it the most common plan among recent graduates. Plan 5 is for courses starting on or after 1 August 2023. Postgraduate loans have their own separate threshold.

One catch worth knowing: if you have both a postgraduate loan and an undergraduate loan, you repay both at the same time, as two separate deductions. That can take a real bite out of take-home pay.

Workplace pensions

Under the Pensions Act 2008, every UK employer must put eligible staff into a workplace pension and pay into it. This is 'automatic enrolment'. You will typically contribute 5% of your qualifying earnings and your employer at least 3%.

That 5% leaving your payslip is not lost money. It is your own salary, deferred and invested, and it comes out of gross pay, so it lowers your tax bill now. You can opt out, but you would be turning down the employer's 3%, which is free money. Hardly anyone should.

What to do if your payslip looks wrong

Mistakes happen. Payroll departments are human and HMRC systems glitch. If your net pay looks lower than expected, check three things, in this order:

1. Look at the tax code. Is it 1257L? If it says 'BR' or '0T' you are probably being overtaxed; call HMRC and get it corrected.
2. If you are paid hourly, check the logged hours against what you actually worked.
3. Email your payroll or HR team and ask them to explain the discrepancy. They deal with these queries all the time; a polite email gets it sorted.

Reviewed 26 Apr 2026 · Editorial standards

Written by

Priya Sharma

Careers Editor. Priya has read more graduate CVs than she can count and sat through the assessment-centre circuit from both sides of the table. She covers grad schemes, applications, interviews, and the first job. If a guide tells you to 'just be yourself' at an assessment centre, it was not written by her. priya@unisorted.co.uk