Getting a part-time job is exciting for teens. Not only do they get to earn their own money, but they get to experience something completely different to school. However, research from the Money Advice Service has found that teens are not prepared for working life, with only 59% saying they understand their payslips. The good news is it's easier than you think to explain how to make sense of this document, and help them understand why it's so important.
What is a payslip?
Your teen's payslip is a summary of their earnings and deductions issued by their employer whenever they get paid. It contains their payroll number, gross and net pay, and their tax code, alongside deductions like National Insurance.
If they are working part-time or full-time as an employee, their employer must provide them with a payslip. They are employees if they have an employment contract that sets out working conditions, rights and responsibilities at work. Though payslips may seem like a simple piece of paper to them, emphasise to your teen that they are important because:
A payslip provides proof of their earnings.
When they are adults, they will need payslips when applying for a mortgage or looking to rent a property.
They will also need a payslip as proof of earnings for future loans.
If they earn over the tax threshold (£12,570 a year for those under 18), they will need a payslip to complete a tax return.
Related: Financial literacy for kids
Some things you'll find on a payslip
"At GoHenry, we believe in giving young people practical learning tools to develop the skills and knowledge they need to manage their money effectively in adulthood. It's one of the reasons we have introduced a payslip session in our induction programme for our younger staff to help them understand what payslips show them about their earnings."
Louise Hill, COO and co-founder of GoHenry
Payroll number - this is the number an employer assigns to each employee working at a company.
Pay period - this is the period of time that this payslip is covering.
Payslip date - the date earnings are being paid.
Tax code - a tax code is made up of numbers and letters, and the numbers tell an employer how much tax-free income an employee gets in a tax year.
National Insurance category - this tells an employer what category an employee falls into to determine how much needs to be contributed in terms of National Insurance payments.
National Insurance number - every UK person 16 and above has a unique NI number of 2 letters, six numbers and a final letter. This number ensures National Insurance contributions (which help build an entitlement to benefits such as the State Pension and Maternity Allowance) are recorded only against the person's name.
Gross earnings - is the money earned before taxes and other deductions are subtracted.
Taxable earnings - this is earnings less any salary sacrifice deductions such as a pension. Deductions only apply to full-time employees.
Net payment - is the amount paid after all taxes and deductions are taken.
Tax period - this is the period an employee has been taxed for. A payslip may show total earnings, deductions and pay for the current financial year (from 6 April to 5 April).
PAYE - ‘pay as you earn’, is the HM Revenue and Customs (HMRC) system to collect Income Tax and National Insurance from employment.
Student loan - these deductions depend on an employee's yearly pay and are taken as a percentage of the employee's earnings above a certain agreed threshold.
Pension deductions - this is an employee contribution for a workplace pension scheme. Applies only to full-time work.
Sick pay - Statutory Sick Pay is calculated by the PAYE system and will appear on the deductions summary. Applies only to full-time work.
Payrolled benefits - this can include benefits such as private medical insurance and company cars.
Year-to-date summary - shows how much an employee has been paid so far in this financial year.
Does everyone get a payslip?
If your teen is an employee rather than a self-employed freelancer, they will get a payslip.
Are employers legally obligated to provide a payslip?
All employers are legally obligated to provide your teen with a payslip every time they are paid.
When do people receive their payslips?
Payslips are usually sent a few days before being paid or may be given on payday.
Are teens entitled to ask for a paper payslip?
Employers only have to issue payslips, they can be issued any way they want.
How long should your teen keep hold of their payslips?
According to HMRC, everyone should keep payslips for as long as 22 months after the end of the tax year. This will help with payment issues, from a mistake in salary to paying too much tax. Your teen's payslip is proof of what payments have been made and taken from them.
What's the Pay As You Earn (PAYE) system?
PAYE, or ‘pay as you earn’, is the HM Revenue and Customs (HMRC) system to collect Income Tax and National Insurance from employment. This is the system your teen's employer or pension provider uses to take Income Tax and National Insurance contributions before they pay wages. Your teen's tax code tells your employer how much to deduct.
What should your teen do if they think their payslip might be incorrect?
Starting a new job as a teen can sometimes mean being on an emergency tax code. This is temporary, and if too much money is taken, it will be paid back. So ensure your teen gets into the habit of always checking their payslips. The payroll department is the first port of call for your teen if the payslip is wrong. Tax codes can also be checked at HMRC online.
How can kids save and spend the money they earn?
All GoHenry teen debit cards come with their own account number and sort code, meaning earnings can be paid directly into your teen's account. Teens can then use the GoHenry app and card to budget, track, save and spend the money they earn. The in-app Money Missions can also help further their financial know-how with bite-sized lessons on budgeting, investing and making the most of their money.