The CIPP’s yearly Payslip Statistics Survey Report has highlighted a critical gap in employee support. Nearly half of employers do not assist their staff in understanding their payslips. This statistic is startling, especially considering the vital role payslips play in an employee’s financial well-being. As payroll professionals, it’s important to recognise the importance of both delivering accurate payslips and ensuring that employees can understand them. This blog explores a payslip’s key components and why helping employees to understand them is important.
Understanding a payslip is part of financial literacy. This is a measure of someone’s ability to manage their finances effectively. A 2023 report found that 73% of Brits fell below the benchmark for these skills, making support around payslips even more important. Having the correct knowledge empowers employees to make better financial decisions. This then helps to mitigate stress and improve their overall financial well-being.
Aside from promoting financial literacy within your workforce, there are other benefits to giving support around payslips.
Providing clarity around payslips fosters a culture of trust. When employees know they are being paid correctly and fairly, it strengthens the employer-employee relationship. This trust is crucial for maintaining morale and can lead to higher retention rates.
Ensuring that employees understand their payslips is also a safeguard for compliance. Misunderstandings about pay can lead to disputes, and in some cases, legal action. By proactively offering support, employers can mitigate these risks.
Now we have explained the importance of understanding payslips, here are a few of the key parts that can be misunderstood or overlooked.
Deductions can be complex, but they are a vital part of the payslip. Common deductions include income tax, national insurance, pension contributions, student loans, and other voluntary deductions such as charitable donations or union dues. Each deduction should be itemised to allow employees to understand how much is being taken out of their gross pay and why.
The earnings section is often subdivided into basic pay, overtime, bonuses, and other forms of income. Each type of earning is listed separately to provide clarity on how the gross pay is calculated. Employees should be able to see a clear breakdown of their total earnings.
However, this is not how much will end up in an employee’s bank account. Also known as ‘take-home pay’, the net pay is what remains after all deductions have been made. It’s crucial for employees to verify this amount against their bank statements to ensure accuracy.
The tax code indicates the rate at which an employee’s income is taxed. It is determined by HMRC based on various factors such as personal allowances and other individual circumstances. Understanding the tax code can help employees verify that they are being taxed correctly.
As discussed throughout this blog, financial literacy beyond just understanding payslips is vital. But, it is noticeably lacking in today’s workforce. This can be put down to a few key reasons:
So, as an employer, it is important that you fill in the gaps in their knowledge and prepare them for a positive career and financial future. In recent years, there has been an increased demand for HR initiatives to support financial literacy. 68% of HR professionals have reported a ‘surge’ of requests for them. So, where should you start?
Education is at the core of understanding. So, hosting regular educational workshops or seminars can help to increase financial literacy. These can be structured around specific topics like payslips and budgeting. This could even be an opportunity for peer learning. Try bringing in employees from your finance department to share their knowledge.
Alongside education, communication is another core factor in creating a solid understanding of a topic. So, in collaboration with your colleagues in finance and payroll, organise open office hours. These are periods of time when employees can come to the expert and ask questions about their payslips and work-related finances.
As with many areas of HR, having an accessible online hub of information is important. To support financial literacy, this could mean putting together a payslip guide or finance dictionary of the key terms. But, it can extend to more detailed guides on other topics.
By taking these steps, payroll professionals can both optimise the effectiveness of payslips and contribute to a more informed, satisfied, and engaged workforce. The benefits of this approach extend beyond mere compliance. These actions foster a workplace environment built on transparency, trust, and financial well-being.
Assad founded Phase 3 in 2004 and is responsible for the strategy, growth and finances of the business.
