Understanding the PAYE Calculation
These are the categories which you will commonly see / use in salary calculations. The categories are split into Employee and Employer elements. This is useful when understanding true employee costs from a business perspective. It is also useful for employees to understand the true salary package that they currently or plan to earn (when job hunting / comparing salaries etc.
Employee Salary factors
- Gross Income : The total amount of your income before any tax deductions or exemptions are applied.
- Personal Allowance : The tax free amount up to which you don't pay any tax on earnings. Personal allowance amounts are generically set by the chancellor at a fixed amount. This amount is refined to personal circumstances and controlled via HMRC using your tax code. Your tax code should always be shown on your pay slip.
- Pension Contribution : The amount you contribute to your work based pension
- Taxable Amount : The amount of your earning on which PAYE TAX is calculated
- PAYE : Pay As You Earn, a means of calculating income based taxes based on specific earning thresholds and related percentages.
- National Insurance : National Insurance is calculated on specific earning thresholds and related percentages, both of which are dependant on the National Insurance Category that you fall in..
- Net Income : Your income or take home pay after the taxman has taken his cut.
Employer Salary factors
- Salary : The baseline amount that an employee earns, normally fixed by contract.
- National Insurance : The amount of National insurance that an employee pays in addition to the salary.
- Pension Contribution : The Employer Pension Contributions that are made on top of the salary amount. Employer Pension contributions are compulsory based on a minimum fixed percentage amount of salary when the employee opts in to the work based pension scheme.
- Cost of Employee : The total cost of an employee when encompassing the salary and additional mandatory elements specific by the taxman.
- Percentages : The percentage figure indicates the specific line item amount as a percentage in in relation to the salary, proving a total figure which relates the total Cost of an Employee to their salary.