Earning your own money is a great feeling, whether it’s a little extra cash or a full salary. It’s important to understand what, when and how you’ll be paid, including whether you’ll be taxed. Here's what to expect when you’re earning.
How much should I be paid?
First off, UK employers have to pay you a minimum wage set by the government. The amount depends on your age and whether you’re an apprentice.
You can also see if you’re being paid fairly by using a salary comparison tool. Many job sites offer these, like Glassdoor or Indeed.
How is pay calculated?
Pay can be calculated in a number of ways, such as annually, weekly or hourly. An annual salary is common for permanent positions, while a weekly or hourly rate is often used for temporary work.
Some jobs also offer extra pay for doing overtime, or for working on a Sunday. Just be aware, companies don’t have to do this unless it’s stated in your employment contract.
What about tips, commission and bonuses?
It’s common to earn tips if you’re working as a waiter or bartender. In some workplaces, tips are pooled and shared out equally among staff.
Sales jobs often pay commission on top of a basic wage. Essentially, the more you sell, the more money you make. Your company will usually have rules about how your commission is calculated.
A bonus is extra money on top of your usual pay. Bonuses are typically given to reward employees for their hard work, or for meeting specific targets. It’s generally up to your employer whether you get one, but sometimes bonuses are specified in your employment contract.
When will I be paid?
This can vary from job to job, and is usually agreed with your employer before you start work. Permanent jobs tend to pay monthly, while temporary jobs often pay weekly or bi-weekly.
If you start a job halfway through your employer’s pay run, you may have to wait until their next pay day to get your earnings. You might want to ask about this when you start, so you can budget appropriately.
How will I get paid?
Most employers will pay your wages directly into your bank account. These employers should also enrol you on the PAYE (Pay As You Earn) scheme, meaning taxes will be taken out of your wages before you receive them. This saves you the task of doing your own taxes. This also applies if you get paid in cash.
If you’re self-employed, you’ll need to tell HMRC about your income yourself.
How much will I take home?
Your pay after taxes is called your ‘take-home’. This is what you’ll actually have to spend. The amount appears on your payslip as your ‘total net pay’, but you can also work it out using an online tax calculator.
What tax do I need to pay?
You’ll normally have to pay national insurance (NI) and income tax. How much you’re taxed depends on your circumstances and income.
National Insurance
Paying national insurance will help you access certain benefits in the future, such as a state pension and maternity allowance.
If you’re over 16, you need to make an NI contribution every time you’re paid. Here’s how you’ll be taxed in the 2018-19 tax year:
0% on the first £8,424 you earn per year (£162 per week)
And 12% on any earnings between £8,424 and £46,350 per year (£162 and £892 per week)
And 2% on any earnings above £46,350 per year (£892 per week)
Example: Say you earn £18,000 per year. You’re in the middle bracket, so you’ll be taxed 12% on everything after the first £8,424. In other words, you’ll pay 12% of £9,576. This means you’d pay £1,149.12 in national insurance contributions for the year.
Income tax
To understand income tax, you need to understand your personal allowance. This is the amount you’re allowed to earn in a tax year before you have to pay income tax.
Your personal allowance is set by the government, and can change from year to year. The standard personal allowance is currently £11,850 per year, but yours may be different depending on your situation.
Any money you earn over your personal allowance will have income tax taken off it. How much you’re taxed depends on the tax band – but essentially, the more you earn, the more you’re taxed.
Example: You have a permanent job with a salary of £18,000 per year. Your personal allowance is £11,850 per year, so you’ve gone over by £6,650. Your salary is within the basic rate band, so you’ll be taxed 20% of £6,650. In other words, you’ll pay £1,330 in income tax.
I’ve paid too much tax - now what?
Sometimes, you may end up paying too much income tax. This might happen if you’ve been given the wrong tax code, or if your earnings have gone up and down a lot. Luckily, you can ask for a tax refund (also called a tax rebate).
Five quick tips
We know there’s a lot to take in, so here are five things to remember:
Read your employment contract carefully
Keep your payslips somewhere safe
Make sure the right tax code appears on your payslip
Use an online tax calculator to see what you’ll have left to spend
Ask for a tax refund if you accidentally pay too much
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