1. Documentation for Pay and Calculations
Topic 3

2. Learning Intentions By the end of this period you should:
Understand what is meant by earnings
Know the difference between wages and salaries
Be able to work out Gross Pay and Net Pay.
Understand how to read a Pay Slip

3. What are Earnings?
Earnings simply mean the money you receive for doing a job. Earnings can be in the form of a Wage or a Salary. Wages – when someone is paid per hour Salary – when earnings are expressed as a yearly figure ie £45,000 pa.

4. Gross Pay and Net Pay
Gross Pay is the amount we receive from working before any deductions are taken off. We all have to pay part of our earnings as Tax and National Insurance. Net Pay is the actual amount we receive after deductions from Gross Pay.

5. PAYE
Pay As You Earn is the way in which employees pay their Income Tax. It is collected by the employer and given to the government. This is much easier and more reliable than employees having to work out and pay the tax themselves. However, people who are self-employed will have to work out their own tax due and send it themselves to HMRC

6. Payslips
Employer must give their employees a written payslip showing details of what they have earned and the amounts deducted. Look at the payslip on Page 38

7. Today ………………..
Read pages 35 to 38 Answer Activity 3a, 3b and 3c in your jotter.

8. Learning Intentions By the end of this period I will:
Understand what National Insurance is used for and how to calculate how much is paid on earnings
Understand what is meant by Personal Allowance and how to calculate the tax paid on earnings

9. National Insurance (NI)
The Government collects National Insurance from your earnings to help pay for:
Benefits you may need such as Job Seekers Allowance
State Pension
Your own personal National Insurance number ensures that the NI and tax you pay are recorded correctly for you.

10. Calculating National Insurance
National Insurance is worked on weekly. There are different classes of NI depending on whether you are employed or self employed. Most employees pay Class 1 contributions which are 12% of your weekly earnings between £149 and £797 and 2% for earning above £749. Look at the Case Studies on Page 40

11. Income Tax
Your earnings are also known as Income and are liable for Income Tax. The tax is calculated as a percentage of your income and is payable to HMRC. Taxpayers receive a Personal Allowance which means the amount of income you are allowed to earn which is tax-free. The Personal Allowance for most adults in was £9,440.

12. Tax Rate and Tax Bands
The more you earn the more tax you have to pay. You pay tax on your income which falls within the following bands:
Basic Rate = 20% (for taxable income below £32,010
Higher Rate = 40% (for taxable income between £32,000 and £150,000)
Additional Rate = for taxable income above£150,000

13. Tax Code
Your employer uses a Tax Code issued by the Government to calculate the amount of tax to deduct from your pay.
The standard tax code for is 944L – someone with this code has a personal tax allowance of £9,440.

14. Today ………………
Read through pages 39 to 46. Study the Case Studies carefully. Complete Activities 3d, 3e and 3f.

15. Sick Pay
If you are ill and cannot work your employer may not pay you. However, the government will pay you Statutory Sick Pay (SSP). The rules for receiving SSP are that you are:
Sick for at least 4 days in a row
Are earning at least £109 per week
Have told your employer you are sick
You will need medical evidence after one week – ie a note from your doctor.

16. Student Loans
The government also provides loans to students. You only have to start repaying the loan when you start earning more than £21,000 a year. The repayments are deducted directly from your wages in the same way as tax and national insurance.

17. National Minimum Wage
The law states that employers must pay the minimum wage to their employees. This law was introduced to make sure employees were not forced to work for a low and unfair rate of pay. The present rates are:
16-17 years £3.72
18-20 years £4.98
21 and over £6.31

18. P45 and P60
These are 2 common tax documents that must by law be given to you. The P45 is used when you stop working. It is a record of the taxable income earned during the tax year, and the amount of tax and national insurance that you have paid. The P60 is a summary of your pay and tax for the year and also shows your tax code to enable you to check the tax you have paid is correct,

19. Tax Return (self-assessment)
A tax return is required by people who do not use the PAYE system. You can complete the self-assessment online or on paper in order to tell HMRC about your income. HMRC will then use this information to work out your tax bill or you can work it out yourself.

20. Today ………… Complete the Topic 3 Activities and Review Questions.
Attempt the Internet and Group tasks on Page 54.
Revise for Topic 3 test on Friday 12 September.

21. Topic 3 Revision Definition of terms ie Earnings, Gross and
Net Profit, PAYE, Personal Allowance etc
Understanding Pay Slips
Working out Pay
Reasons for Tax and National Insurance
Sick Pay
Documents and bandings used by the Government
Self-Assessment
National Minimum Wage
Student loans

22. Activity 3G Calculations
Monthly Gross Pay Yearly Gross Pay/12 Taxable Pay Yearly Gross Pay – Personal Allowance Monthly Tax Taxable Pay x Tax Rate/12 Net Monthly Pay Gross Monthly Pay – Monthly Tax

23. Offset Mortgages
If you have a large sum to save this can be offset in another account and the bank will deduct what you have in savings.
Mortgage for 100,000K, 20,000K savings you repay on 80,000K
This can reduce your mortgage by around 8 years

24. Current Account Mortgages
The mortgage is shown as a large overdraft that you reduce monthly – payments can be flexible

25. APR Annual Percentage Rate – This can be fixed or variable
AER Annual Equivalent Rate

26. How to take money out of an account
Over the counter
Sanding Order or Bank Transfer
ATM Automated Teller Machine
Cash Cards Debit Cards
Direct Debit
Cheque Clearance Pay it in, Day 2 Cheque Cleared for Interest Payments, Day 4 You can withdraw money, Day 6 the cheque will be paid

27. Cash Card
Given to people normally 18 and under – They can only withdraw what they have in an account
Debit Cards allow you to buy in shops, take cash, buy on line (only if you have sufficient funds)

28. Online banking
You have to access to a computer

29. Telephone Banking Phone or mobile
Some banks contact customers by phone using text messaging