Payslips - Who's Getting My Money? BOD011

0:00Pete:No daughter of mine is opting out of a pension. Oh yay, let's get buried in tax relief. That sounds riveting. It's a wonder we aren't like number one on entertainment podcast chart. Hi and welcome to the Bank of Dad podcast. I'm Kate and this is my dad Pete. Hello. And we're here to teach you the money lessons we were never taught at school. There's no judgment, no jargon, just real talk about how to handle your money. Yep, let's get into it. This is number 11. Yeah. And slight change of pace. We talked about credit cards the last two episodes. Yes. So we thought, this is one of the first things I think we talked about when we kind of were just thinking about doing this, which is like 18 months ago now.

0:45Pete:We thought, wouldn't it be good to explain what's on a pay slay? Yeah, and I think of all the things, I know this channel was built, and this podcast was built on the concept of I can't believe there's stuff that we're not taught at school about this. But this, to me, seems like one of the key ones. Definitely right. Because everybody, as soon as they start working, will get a pay slip. Yeah. It kind of helps, I think, to understand what's going on with it. And do you remember at the time I had the world's most confusing, well, not at the time. Oh, your local government ones when you were a teaching assistant?

1:17Yeah, when I was a teaching assistant. Was the most confusing pay slip I've ever seen in my life.

1:21Pete:I mean, I had to study it for a long time, and even though I'm not 100 % sure I understood it, because you had two different bits, because you were TA and you were a lunchtime supervisor. Yeah, technically I had two different job roles. So there was like 45 minutes where I was on a different job role the other day. Sounds like local government, doesn't it, to massively over-complicate something. And it was like two and a half, three pages long, do you remember? Yeah, it was crazy. It was so confusing. Hopefully most people are not quite that complicated. But I remember coming to you and being like, well, heck does this mean?

1:51Pete:Well, yeah, with good reason. Yeah, but before we get into that, it's time for Wanky Word of the Week. It's time for Wanky Word of the Week. Hey, Dad. You still haven't done that button, you promised me. No, I know. There must be a way. I can't work it down. You say this every time. Thing is, it's an opportunity for another gadget. Shock. Just a little thing here would be good. just press it I think that's going to happen I challenge you we're on episode 11 to get it done before episode 16 challenge accepted there you go you had it at first ok so this week's wanky word of the week is sorry I'm just on Amazon ordering the budget thing the bottom thing no I'm not wanky word of the week is net pay it is net pay I mean net's a stupid word isn't it that's what you catch fish with sure well how much fish do you catch Not many.

2:52Pete:I rarely catch fish in the net. Often in your waders. Yeah, also, you know, a lot of people catch fish on a line with a rod or whatever. But, you know, I mean, we're in West Corn, also lots of fishing going on here. But net actually comes, apparently the word net, I looked this up, all right, in a sort of fit of research. Don't say you're not committed. it's so linked to french and then back to a latin word which essentially means clean or free of excess so in this case net is as opposed to gross so the net pay is what you get after everything else is taken off oh that's quite a good way like knowing that etymology actually helps to understand where it's come from shockingly what yeah i mean i don't know why you know anybody would know that it's linked to sort of a latin and subsequently a french word meaning clean yeah but that makes sense yeah yeah so clean of all the stuff that gets stripped away basically obviously it means it's less than gross it'd be nice if we got our gross pay but you know for if you're an employee you receive the pay net of all the stuff that's been taken off which we're going to talk about if you're self-employed you don't you have to kind of um provide for things like tax and national insurance you have to do that yourself so yes i did my first tax return this year.

4:11Pete:Yeah, she did, which was deeply enjoyable for us both. Yeah. Yeah. I say I did it. Well, yeah, because you are self-employed in that role, aren't you? So as well as being employed. So that's net pay. And that's obviously going to speak to what we're going to talk about now. Yeah. It's almost like I pick the words to be linked to the topic. Yeah. Good job. So when you open your pay step, obviously people do know that there's things like, that money gets taken away. People know that you don't end up with what you earn. So what would you say are the usual suspects, the things that are always going to be on the payslip regardless of your job?

4:50Pete:Okay. In almost every case, it does depend on how much you earn, but in almost every case you will have tax, specifically income tax. There are lots of different taxes, but specifically income tax. There will be national insurance. which is just another tax right it doesn't sound like it it's not really insurance at all does it do anything differently? well income tax kind of goes into a general pot right so the government just gets a load of income tax in as long as all their other taxes capital gains inheritance tax VAT all that stuff corporation tax from companies that all just kind of goes into a general pot national insurance most of it goes into a specific pot called the national insurance fund and it's primarily the reason why it's called national insurance is it it's something that then you can draw from when you need it so the main one is the old age pension the state pension right so then you're no longer working you'll have paid national insurance all your life and then when you get to 66 soon to be 67 you can start drawing your state pension so it's a kind of insurance pot but perhaps So better use of the word insurance is also maternity cover it will pay from.

6:07Pete:Bereavement benefits. So there are some benefits payable to you if you lose your spouse. Job seekers allowance. So if you're out of work, you can claim job seekers allowance, employment support allowance. So the national insurance is more about those kind of benefits. Okay. So it's not that how much you put in is how much you get out. Oh, no. The fact that you can put it in is almost like your password that lets you in order to draw out. Well, yeah, because some state benefits are dependent on you having contributed. So your state pension, for example, you have to have paid national insurance for a minimum of 10 years.

6:44Pete:And depending on how much national insurance you've paid in will determine your state pension at the other end. Is how much national insurance you pay affected by what you earn? Yes. It's a percentage. You can't remember what the percentage is. well it doesn't really matter for the purposes of this but yes so there's like a threshold there's a minimum threshold you don't pay any national insurance below that and then you do start paying national insurance is that the 12 12 570 now yeah um so so that's one that's 12 570 pounds for the year yeah if you earn less than that you don't pay national insurance no more than that you pay a percentage yeah yeah okay so and the same goes for income tax actually those two are sort of somewhat aligned um rates are different and all that sort of stuff but it's really important with national insurance is that you know that there's no pot which is yours so it's not like you're paying into a pot that you can then draw from no that's not how it works it's just sorry god you so um like with the state pension for example you know you you kind of build up credit towards the state pension but you do that in years yeah all right so it depends on how many years you've paid or even part years but it's not like you're paying into a pot with your name on it so what happens is is that those of us who are paying national insurance now because we are working we are essentially funding the retirements of those who have retired yeah and it'll be the same in 30 40 years time you know i'll have retired by then i'll be paying you yeah you'll be to use that in an argument although we argue but be like oi i pay your wages yeah that'll be saying that's fine I paid yours for years.

8:19Pete:So you know it's really important there is no national insurance pot with your name on it's just another tax the fact that the government uses it for specific things is really largely irrelevant but you do get credit against those things I mean god forbid you'll never need job seekers allowance you'll always be in work god forbid you won't need bereavement support right but if it's there if you do then it's there but you will have had to have paid for some of those you have to have paid in right so that's so income tax we talked about that will be on there what you tend to find is that um the pay slips in like columns yes all right and two main columns in and out basically so coming in is obviously your gross pay yeah that might be broken down uh you might get like you know extra hours or back pay or um you know London waiting or, you know, something.

9:10Pete:Well, some people, you know, if it's a big company, somebody working in or around London doing the same job as somebody in, say, Manchester, the person in London might get paid slightly more. Because of the cost of living in London. Yeah, right. It's not like the law that that's the case or anything. No, but some companies do that. Yeah. Right. So that's kind of your in column and then the out column is income tax, national insurance, pension. is a big one. So these days, depending on your earnings, you will be automatically enrolled into a pension. We've got a lot of stuff to talk about for pensions.

9:45Pete:So that'll be probably two or three weeks, I think. Yeah, I've had a couple of people in the emails ask about pensions. So we've got a couple of weeks on insurance coming up after this and then I think it'd be good to dive into pensions because it's such a huge subject. And it's one of those ones you think, ah, that doesn't affect me yet. But it really does. Yeah, it really does because you're paying for it now already if you're earning. So your pension contribution usually is deducted from your salary. So you'll see that in the deductions column. It's usually a percentage. If you start a role, sometimes you are asked, do you want to join your pension scheme, don't you?

10:21Pete:Well, you are automatically enrolled, but usually when you join, you'll get a letter explaining the pension fund and some employers will put on like a three-month delay. Are you automatically enrolled? Yes. Is that a thing now? Yes, it's been a thing since 2012. I feel like I've been asked before, though. Well, you may have been. Well, no, no, you wouldn't have been. You would have been automatically enrolled, but you are given the option to opt out. Oh, maybe it was that. Do you want to opt out, to which I said, no. No daughter of mine is opting out of her pension. But, I mean, it makes no sense to opt out, but I do understand why people might, if it's not explained to them properly.

11:00Pete:But, yeah. Because, particularly if you're, you know, a low earner, you feel like, well, I need every penny I can. So I do understand why people do. But some employers will put on like a three-month, like say, while you're in your probationary period. Yeah, yeah. All right. I don't think it can be any longer than three months though. And then you're automatically enrolled. So your pension contribution will be deducted. You'll see that. Yeah. Have you got... No, no, no. No, no, no. After you. No, because I was going down a pension rabbit hole. Do you want to carry on down it? Well, I was going to ask about, can you also contribute independently?

11:33to your pension.

11:34Pete:So you could have sort of voluntary contributions. You'll sometimes see AVC, additional voluntary contribution. Okay. And you can agree with your employer because... Is that what salary sacrifice is? It's a whole different rabbit hole. Oh, okay. Come back to that in just one second though. But you can... The sort of minimum amount for you in an auto-enrollment pension is 5 % for you. Of your wage? Yes, of your gross. Hey, top line right so yeah 5 % but if you think about that what's happening then is that's coming off your pay first and you're paying less income tax as a result so you're actually only paying 4 % of your net pay government essentially pays one of those 5 % for you don't worry about the maths too much at this point that will become clearer when we do pensions and we could really get buried in tax relief now's not the time let's get buried in tax relief that sounds riveting it's a wonder we aren't like number one on entertainment podcast charts so yeah salary sacrifice is something where you contract with your employer to actually reduce your salary in return for a bigger pension contribution from them that's something we could talk about most people I think in our audience so younger adults are probably not in the position where they're doing that yeah yeah okay Not all, but some.

13:00So that's sort of the pension side and that deduction is for what? Well, that will, when we get into pensions,

13:09Pete:we'll talk about the types of pension, but essentially that's just putting money away for the long-term future. Yeah, and that's sort of, yeah, for future. Future you. Yeah. There can also be deductions for past you as well, Carla. Specifically, you're talking about student loans. I'm talking about student loans. Yeah, so very hot topic at the minute. Lots of... Also one that's been highly requested. Yeah. My views on student loans are changing, actually. Oh, really? Slightly. Yeah, which... Yeah, we'll get into it. Oh, gosh. There's many opportunities for rabbit holes here. Cans open worms everywhere.

13:46God, can open worms everywhere.

13:50Pete:I think for the purposes of this, if you earn over a certain amount, you start to pay your student loans back. It depends on what. It changes. For plan two loans, I think it's about$27 ,250, something like that. I'd need to check. But over that amount, you pay 9%. But not on the whole lot, only on the bit over the threshold. So if you earn£1 ,000 over, say, let's say you earn£1 ,000 over the threshold, you pay 90 quid a year. Yeah, nice. All right. Round numbers. Thanks. Always working round numbers. Yeah, when you say that, and then the government's like 12, 750 or 12, 570 even. I know, it's ridiculous.

14:3113 is fine.

14:32Pete:That's because those things are influenced by inflation. Yeah, I'm sure there's very smart people who understand it. It's just stupid. It is. Why can't we just work in round numbers? You never get less than a five grand a year payroll because it's five and, you know. Yeah, it's just sounds funny. It would be good. Yeah, so pension student loan. And then finally, there may be some other deductions. And so if you have sometimes agreed like a company car scheme, you might make a payment towards that. That might come off. When does the Jackson's company car scheme? Yeah, right. I'd like a McLaren.

15:03Pete:Would you? I would. I can see that never happening. Or an Aston. I can settle for an Aston. Yeah. Or a bike. It's much more likely. Pedal bike or at least an engine? Well, maybe an electric bike. There is actually an electric bike scheme. Cycle to work scheme. I say there is. We are not currently running it. I was going to say, do we? We could. You and I live cyclable distance. We do live cyclable distance, yeah. And I drive every day. I know. So bad. So do you. And so do I. Anyway. Okay. And finally, if you're in a union, you might see your union fees deducted. Yes. Actually, I'm trying to think about, because when I was in school, I was in a teacher's assistant union.

15:43I was in the school when everything started, when all the strikes happened. That was fun. But annoyingly, my union didn't strike.

15:54but that I had to just pay out on my own.

15:57Pete:That was just irideming, wasn't it? Yeah. Okay. I'd say that's probably more likely, but you might see that. It might be because it wasn't like a company union. Yeah. It was a national teacher's assistance union. Maybe. I don't know. I don't know. You might see it on your payslip. So tax, national insurance, pension, student loans, these are the things that come off your pension, off your gross pay which leads to your net pay if you look at your payslip it's the bottom right that's the number that matters oh yeah that's all I do what's going in your bank oh they're getting rid of loads of things the first one like in a new job I checked the tax codes right ooh tax codes yeah we're getting there and then after that I just look at the bottom right what have I had most people do this month what's coming in the bank so speaking of tax codes there are a lot of letters and numbers and combinations of things that people do skim over myself included because it means nothing to you then.

16:51Pete:Now, so your tax code is issued by HMRC, His Majesty's Revenue and Customs, the tax person. Can't say the tax man anymore. No, because it could be a tax woman. Yes, exactly. So from here on, we'll call it HMRC, right? So the government, the tax department of the government, right? So the tax code is there to make sure you pay the right amount of tax, and it's issued by HMRC. And it's dependent on? It's dependent largely on your earnings. Okay. So the thing to remember, it's made up of numbers and usually one letter at the end. Yeah. Right? So if you take your number, so let's just say it's 1275, sorry, 1257, because that's what most people will have.

17:38The 12 ,570. Add a zero to it to make 12 ,570.

17:43Pete:That's the amount you can earn without paying income tax. Yes. That's called the personal allowance. so but if you have two jobs right yeah hmrc has to kind of work out well which job is getting the first slice the first crack of that personal allowance if you think if you had two incomes if you think of them stacked one on top of the other the the bottom one takes up the personal allowance and maybe goes above that so let's say you earned 15 grand from from your job number one then that would use all of your personal allowance yeah and then a bit more into the 12 570 section Yeah, yeah. So the tax code for that would probably be 1275 and then a letter.

18:2157.

18:22Pete:What did I say? 75. That's the second time I've done that. Thank you. 1257, right, and then a letter. And then your second job, it doesn't really matter what you earn, you'd probably just have the letters BR for basic rate because your personal allowance has been fully used by job one. Yeah, you're automatically going to be paying tax. You're going to pay 20 % tax. Yeah, yeah. So again, we need to do sessions on income tax because it's really important. We need a tax episode. I'm thinking of my head now. Yeah, exactly. That, I think, if anything, will propel us to the top of the entertainment charts, a tax episode.

18:52Oh, yeah. It's like when you had a meaningful money Q &A and someone said, I really enjoyed the inheritance tax episode. And you literally went.

18:59Pete:Did you? Are you sure? What's the matter with you? As if you haven't put that very content out. Well, I know. But it's not for the purpose of entertainment. I mean, we are deeply entertaining. Well, clearly, inherently. So the purpose of the tax code is to make sure you pay the tax, the right amount of tax at the right time. sometimes if you start a new job it's a bit lumpy for a couple of months because it particularly if you start a new job halfway through the tax year because you will leave one job you'll get what's called a p45 yeah which is a kind of statement of how much you've earned in that that job so far in the tax year how much tax you've paid part of that p45 goes to your new employer yeah and hopefully that should all kind of join up with the revenue and your new employer's payroll system so that it's right from day one but sometimes it isn't if you lose your p45 or you don't get issued one which is illegal then you you will start on usually what's called an emergency tax code so that's just what they shove you on for the sake of well at least you're paying tax yeah usually emergency tax code it will be um w1m1 which stands for week one month one so it's like almost you're starting from scratch but that might be incorrect so it generally comes out in the wash in a couple of months because as soon as your new employer does their first pay run, these days all that's done under something called making tax digital.

20:23Pete:It goes straight to the revenue straight away and they will connect the DOS because of your national insurance number. Good segue. So they will connect the DOS and say, ah, right, okay, this person's now in a new job. We know we can connect the records now. Oh, they've paid too much tax. Yeah, and they'll adjust it the following month. Oh, they've not paid enough tax. Yeah, so I have no input at all in the amount of tax that you and the rest of the Jacksons team pay. We just basically get told what to deduct. And it's all based on the tax code. So it's important that you kind of know vaguely how much it works.

20:55Pete:The letters on the end, I said, you know, it's numbers and letters usually. So 12, 5, 7, and then a letter. The letter does have relevance, but I've never really sort of come to the point where I've needed to understand it. If you're a director of a company, you might have a different letter. if you're just, in inverted commas, an employee, it'd be a different letter. Ultimately, I think it doesn't really matter. It's the number that really determines how much tax you pay. Tax you're going to pay. And it's decided by the revenue and nobody else. People smarter and less interesting than me won't understand what the letters mean.

21:31There's a lot of people tutting at you now. So, national insurance number. Now, this makes me giggle because, first of all, when I got it, you said, memorize it. and I could reel it off now. Obviously, I won't. No, probably not. And you were like, yeah, you have to learn it. And like two days later, you said, Kate, what's your national insurance number?

21:50Pete:And had you learned it? Yes. Of course you have. Because I'm a teacher's pet. Yeah, people pleaser. And a chronic people pleaser. But I then had this conversation with a couple of people at Jackson's office and I was like, yeah, do you know your national insurance number? it was like 30 % did. Oh yeah. The world is divided into people who do and who do not know their national insurance number. I learned mine when I was about 40. Really? Yeah, honestly. It's just because I got sick of having to look it up. So I finally memorized it. Is that why you did it for me? Well, yeah, because you will use it your entire life.

22:31Pete:It stays with you from age 16 until the day you die. I really want to reel it off to show that I can, but again, I'm not going to. No, don't. I don't want identity theft. yeah like at scale yeah 500 people nick your iron your national insurance number don't do that no but it's literally racing through my we'll put it on screen here yeah it's a unique identifier it's unique to you and it'll stay with you throughout life are there any meaning towards the letters and number combination um no because it's basically so people i'm born 1975 and so i tend to find people are about my age um have the same very starting letter so other than that i think it's just random yeah i think they're issued consecutively so you know technically the person born like immediately after me should have the consecutive number but i don't know where that's the case after you track that births and deaths i guess i do you know i mean yeah i don't really care and it doesn't really matter so probably you'll find that people are born around on the same month as you will have a similar, certainly probably the first, similar first two letters.

23:38Pete:But other than that, I don't know. Okay. Well, yeah, that makes sense. It's a lot of millions of people. So, you know, that's why it's so long. Two letters, six numbers, one letter. Yeah. Okay. You imagine that again, Sean. You should have something in your head then, wouldn't you? Yeah, you could see the cogs turning, couldn't you? Yeah. So we've talked about those sort of things, and I'm trying to think about other things that are on the payslip. The dates, we've written down here in our notes, payslip dates and pay period. What do you mean by that? So it depends how often you're paid. If you're paid monthly, there's 12 pay periods in a year, right?