# 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 ( ). £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.

### Example

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 =

National insurance deduction = £100

Net pay =

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

## Deductions

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.

### Example

Stephanie’s pay is £420 per week.

She works for 37½ hours per week.

Work out her hourly rate.

Question

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: "

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 = 48 weeks.