Salary and pay

Salary usually refers to the amount of money a person earns over a year. For example, if a shop assistant has a salary of £18,000 per year, his/her monthly pay would be £1,500 ( \pounds18,000 \div 12 \:\text{months}). £1,500 is the gross pay.

  • Gross pay is the full amount paid to an employee before any deductions are made.
  • Deductions are income tax, national insurance and sometimes pension contributions.
  • Net pay is what's left after deductions have been made from gross pay. This is the amount an employee actually receives.


If the shop assistant has to pay tax at a rate of 20% and has to pay £100 national insurance then what is his/her net pay?

Tax to pay = \pounds 1,500 \times 0.2 = \pounds 300

National insurance deduction = £100

Net pay = \pounds 1,500 - \pounds 300 - \pounds 100 = \pounds 1,100

£1,100 is their net or 'take home' pay.

Yearly salary: £18,000 Monthly gross pay: £1,500 Tax rate: 20% Tax deducted: £300 NI deducted: £100 Monthly net pay: £1,100


The employee pays income tax directly to the government. It is a percentage of the gross pay depending on how much is earned - the more you earn, the higher the percentage. People earning below a threshold pay level don't need to pay income tax at all.

  • National Insurance is the system of contributions paid by all working people for state benefits such as the NHS, schools and state pension.
  • A pension is a special savings fund that is built up during a working life to provide an income during retirement.


Stephanie’s pay is £420 per week.

She works for 37½ hours per week.

Work out her hourly rate.

\pounds 420 \div 37.5 = \pounds 11.20


Stephanie wants to work out her annual salary. She says:

"There are 4 weeks in a month, so I will multiply £420 by 4.

There are 12 months in a year, so I will multiply the answer by 12: \pounds 420 \times 4 \times 12 = \pounds 20,160"

Does her method give the correct amount for her annual salary?

No, Stephanie's yearly pay is more as there are 52 weeks in a year and this method only gives 4 \times 12 = 48 weeks.