MoneyMagpie Editor and financial expert Vicky Parry warns about common errors on PAYE payslips that could cost you hundreds of pounds
When something is wrong on your payslip, an innocent mistake could cost you hundreds or even thousands of pounds – even if it’s not your fault!
From being overpaid by your employer to not being on the right tax code, there are lots of ways an incorrect payslip could impact you and your finances. Check your payslip every month for these common errors.
Incorrect tax code
Everyone is assigned a tax code based on their income and other factors. For most people with a single job or pension, that code is currently 1257L. That reflects the amount of personal allowance you can earn before tax is owed: £12,570 per tax year.
This changes depends on things like company benefits; for example, if you receive £1570 of medical insurance pre-tax, your code will be 1100L instead, as your Personal Allowance is reduced to £11,000 a year.
If you have moved jobs part-way through the year, you may be placed on an emergency tax code which has a higher rate. If you see the code C0T, W1, M1, or X on your payslip and you have been at your job for more than 35 days, speak to the person who handles payroll. It usually means they haven’t got the right information yet, such as your P45 from a previous job.
Incorrect annual leave
Make sure you keep track of how many holiday days you take, and that your payslip is correct. This is because you could be told you owe the company for overused annual leave if you stop working there through the tax year, or you could be missing out on holiday you are legally entitled to.
Untaxed bonus or commission payments
Bonuses and commission payments are taxable. If you see a lump sum payment on your payslip but tax has not been accounted for that extra amount, it’s vital to get the payslip (and pay) reissued as soon as you can.
This is because you could end up owing tax to HMRC that you weren’t aware of, which can risk the payment of late payment fines and more (as well as finding the cash to repay the owed tax).
It’s particularly important to check your bonus and commission payments on your payslip if you are near a tax bracket threshold. A large payment could push you over this threshold, meaning you pay more tax than you expected to.
Missed overtime payments
If you work irregular hours or overtime, make sure they are accurate on your payslip. Even if you think something might be incorrect by half an hour, ensure it is updated to the right amount – especially if the error is repeated across several payslips, as you’re losing money you’re entitled to (or being overpaid).
Overpayment
Sometimes, employers accidentally pay someone too much. This can happen due to human error or if they believe they owed you extra, such as payment in lieu of holiday time.
Your employer can claim this money back from you. Don’t spend it. If you think you’ve been paid too much, tell payroll and check your payslip for details to find out where the error may have happened. Find out how to make the repayment as soon as possible, otherwise you could be in a tricky situation if your employer asks for money back that you’ve already spent.
Classifying you as a contractor
In industries where some employees are PAYE and some are contractors, it can be easy to be classed as the wrong type. This significantly impacts how taxes and National Insurance are calculated. PAYE employees have their pay taxed and deducted before they receive their money, while contractors get the full amount and are responsible for making their own tax and National Insurance payments.
Late reporting
If you claim means-tested state benefits, reporting periods can make a big difference in your payments. This is particularly true if you are unfortunate enough to have a reporting period that comes at the end of the month, when payday is likely to occur.
That’s because if a payday lands on a weekend, your employer might report your earnings too early or late for the correct period – meaning you don’t receive the correct amount of benefit you’re entitled to.
If you are in receipt of both PAYE pay and means-tested benefits, make sure to speak with your payroll department about your payment date and the date they report it. If things aren’t stacking up between your Universal Credit or benefits statements and your entitlement, speak to your employer and also make a note in your online Universal Credit journal.
Withholding pay
Your employer cannot legally withhold pay from you except in very specific circumstances. For example, they can’t decide that you underperformed at work this month so deserve less pay.
They also can’t deduct for till shortages or missing stock unless your contract says so; they cannot take more than 10% of your pay due in each period. Your wages can be ‘garnished’ – that means deducted before you get paid – for a few specific reasons:
If you have a County Court Judgement to recover debt, a claim can be made to take deductions from your pay (this is called an attachment of earnings).
The Department of Work and Pensions can deduct from your pay to reclaim overpaid benefits, while HMRC can claim for underpaid taxes. Your local authority can claim for Housing Benefit overpayments, too.
ACAS has a helpful list on what can and cannot be deducted from your payslip. They are also the people who can help you if you believe your employer has wrongfully deducted wages and has refused or been unable to resolve the dispute with you.
Underpayment at National Minimum Wage
Your employer cannot, except in very specific circumstances, take your pay below the hourly rate of National Minimum Wage. For example, if you earn NMW and they try to deduct the cost of a training course, you must have agreed to the course in writing beforehand.
Underpayment also happens when hours have not been accurately tracked, or when you age up into the next NMW bracket. Anyone aged 21 or over is entitled to the National Living Wage of £12.21 per hour, those aged 18 to 20 should receive a minimum of £10 an hour, and under-18s and apprentices cannot be paid less than £7.55 an hour.
Check your HMRC record
If things don’t seem to be stacking up on your payslip but your accounts department is convinced it is correct, you can check the details HMRC hold on you with your online tax account.
This may indicate errors that aren’t in payroll’s remit or mistakes they are unaware they have made. For example, if you received a large bonus in one month, HMRC may believe that is reflective of your annual salary going forward, and as such they might estimate you are earning a lot more than you actually are. Or, HMRC may still have a previous employer listed as a current one (this is particularly likely if you move jobs in the same tax year).
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