Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
A UK payslip must, by law, show pay before deductions, pay after deductions, and the number of hours worked where pay varies by time [1]. The first of those figures, the gross wage, is where two terms are routinely mixed up: basic salary and gross salary. They are not the same number, and the gap between them is often where overtime, bonuses and commission live.
The confusion carries a cost. Pension contributions, minimum wage compliance, maternity pay calculations and the amount of employer National Insurance due all turn on which figure is being used. With the employer National Insurance rate sitting at 15% on earnings above a £5,000 Secondary Threshold [2], a pound counted in the wrong column changes what an employer owes HMRC.
This article sets out exactly what basic salary covers, what gross salary adds on top, how gross pay is reduced to the net figure an employee actually receives, and why payroll teams need to keep the two apart on every payrun.
Key takeaways
- Basic salary is the fixed contractual rate of pay before any extras; gross salary is the full amount earned in a period before any deductions.
- Gross salary includes basic pay plus overtime, bonuses, commission, shift premiums and most allowances.
- Net pay is gross salary minus PAYE income tax, National Insurance, pension contributions and any student loan repayments.
- The Personal Allowance for the 2026-27 tax year is £12,570, and employer National Insurance is charged at 15% above £5,000 a year.
- Minimum wage compliance is tested against qualifying pay, which excludes overtime premiums, tips and most allowances, so basic salary alone is not the test.
What basic salary means
Basic salary is the fixed sum an employer agrees to pay an employee for their standard working hours, set out in the employment contract before any variable extras are added. It is the baseline rate, quoted as an annual figure for salaried staff or an hourly rate for workers paid by time, and it does not move from one pay period to the next unless the contract itself changes.
Because it is contractual, basic salary is the figure most job adverts quote and the number a lender often asks for when assessing regular income. It is also the anchor for pay reviews, redundancy calculations and many benefit entitlements, which makes it a reference point rather than a measure of total earnings.
Basic salary as the contractual floor
The contract of employment is where basic pay is defined, and UK employees are entitled to a written statement of their main terms, including pay, from day one of employment [3]. This statement fixes the basic rate and the normal hours it relates to, so basic salary is best understood as the stable floor beneath everything else on the payslip.
For salaried hours work, the basic figure is spread evenly across the pay periods in the year regardless of the exact hours in any single month [4]. An employee on an annual basic salary of £30,000 paid monthly therefore sees £2,500 of basic pay each month, before anything variable is added and before any deduction is taken.
What basic salary excludes
Basic salary deliberately leaves out everything that varies with performance, hours or circumstance. Overtime, bonuses, commission, tips, shift premiums, London weighting and most allowances all sit outside the basic figure [5]. They are earnings, and they are taxable, but they are not part of basic pay.
This matters because an employee can earn well above their basic salary in a given month without their basic rate changing at all. A salesperson on £24,000 basic who earns £1,000 of commission has a basic salary of £24,000 and a far higher gross figure for that period. Benefits in kind, such as a company car or private medical cover, are also outside basic salary, though they carry their own tax treatment through the P11D process [6].
What gross salary means
Gross salary is the total amount an employee earns in a pay period before any deductions are taken. It is basic salary plus every variable and additional element paid in that period, and it is the figure that appears at the top of the payslip as pay before deductions, the "gross" wage the law requires to be shown [7].
Gross pay is the number that PAYE income tax and National Insurance are calculated from, which is why it, rather than basic salary, drives most payroll arithmetic. It can change every pay period as overtime, bonuses or commission rise and fall, even while the underlying basic rate stays fixed.
The building blocks of gross pay
Gross pay is assembled from several distinct components, each of which is taxable as earnings through PAYE [10]. The table below sets out the common elements and how each relates to basic salary.
| Pay element | Part of basic salary? | Part of gross salary? |
|---|---|---|
| Contractual basic pay | Yes | Yes |
| Overtime (including any premium) | No | Yes |
| Bonuses and performance pay | No | Yes |
| Commission | No | Yes |
| Shift and unsocial-hours premiums | No | Yes |
| Allowances (for example London weighting) | No | Yes |
| Statutory pay (SMP, SSP and others) | No | Yes |
Every element in the "gross" column is subject to PAYE and, above the relevant threshold, to National Insurance [8]. The gross figure is therefore the true measure of what an employee has earned in the period, whereas basic salary measures only the contractual core.
Gross pay on the payslip
On the payslip, gross pay is the headline figure before the deductions section begins. Where an employee's pay varies by the time worked, the payslip must also show the number of hours the pay relates to, a requirement that applies to all workers and not only salaried employees [9]. This hours line often reveals the overtime and variable elements that separate gross from basic.
Modern UK payroll software itemises each gross element separately, so basic pay, overtime and bonus appear on their own lines before the running total. Software recognised by HMRC reflects the current rates and submits Real Time Information automatically on each payrun [33]. Breaking out the components this way helps both the employer and the employee see precisely why the gross figure differs from the basic salary in any given month. A sole trader or occasional employer who needs a single compliant document can use an instant payslip generator that still separates gross pay, deductions and net correctly.
Basic salary vs gross salary: the core difference
The distinction can be summarised in one line: basic salary is fixed and contractual, while gross salary is the full taxable total for the period. The comparison table below draws the two apart across the characteristics that matter most on a payroll.
| Characteristic | Basic salary | Gross salary |
|---|---|---|
| Definition | Fixed contractual rate for standard hours | Total earnings in a period before deductions |
| Varies period to period | No, unless the contract changes | Yes, with overtime, bonus and commission |
| Includes overtime and bonuses | No | Yes |
| Shown on payslip as | A pay line (basic pay) | Pay before deductions (the "gross" figure) |
| Used to calculate tax and NI | No | Yes |
| Typical use | Contracts, job adverts, pay reviews | Payroll calculations, total earnings |
In practice, basic salary and gross salary are identical only when an employee receives no variable pay at all in a period: no overtime, no bonus, no commission and no allowance. The moment any extra is added, gross pulls ahead of basic, and it is gross that the rest of the payroll calculation runs on [10].
How gross pay becomes net pay
Gross salary is not what lands in an employee's bank account. The payslip moves from gross pay, through a set of deductions, to net pay, the amount after deductions that the law also requires to be shown [11]. The main deductions are PAYE income tax, National Insurance, any pension contribution and any student loan repayment.
PAYE income tax
Income tax is deducted through Pay As You Earn on the taxable portion of gross pay. For the 2026-27 tax year the Personal Allowance is £12,570, after which the basic rate of 20% applies up to £50,270, the higher rate of 40% up to £125,140, and the additional rate of 45% above that, for employees in England and Northern Ireland [12]. The employee's tax code tells the employer how much tax-free pay to apply, with 1257L the standard code for someone with the full allowance [13].
Scotland sets its own income tax bands, and Scottish tax codes start with the letter S, while Welsh codes start with C [14]. HMRC also caps any single PAYE deduction at 50% of an employee's gross pay, a safety net that prevents a tax code error or back-tax recovery from wiping out a pay packet [15].
National Insurance
National Insurance is the second major deduction and is charged on gross earnings above set thresholds. For the 2026-27 tax year, employees pay 8% on earnings between the Primary Threshold of £12,570 a year and the Upper Earnings Limit of £50,270, and 2% on earnings above that limit [16]. These contributions come straight off gross pay and appear as a separate line on the payslip.
Employers pay their own National Insurance on top, at 15% on earnings above the Secondary Threshold of £5,000 a year, a cost that does not appear on the employee's payslip but forms part of the true cost of employment [17]. Because this charge is assessed on gross pay, a month with heavy overtime raises the employer's bill as well as the employee's, which is one reason the gross figure, not the basic, is the one that matters for budgeting a hire.
Other deductions: pensions and student loans
Workplace pension contributions are deducted where an employee has been automatically enrolled, and both the employee and the employer contribute. Under auto-enrolment, the minimum total contribution is 8% of qualifying earnings, of which at least 3% comes from the employer [18]. Qualifying earnings are themselves a gross-pay concept, calculated on a band of earnings rather than on basic salary alone.
Student loan deductions are the other common item, taken at 9% of earnings above the plan threshold, which ranges from £26,900 on Plan 1 to £33,795 on Plan 4 for the 2026-27 tax year [19]. Where an employee has both a student loan and a postgraduate loan, the postgraduate loan is deducted first [20]. All of these deductions reduce gross pay to the net figure, and each must be itemised separately on the payslip.
Why the distinction matters for employers
Getting basic and gross right is not a semantic exercise. Two of the most common payroll compliance failures, minimum wage underpayment and pension miscalculation, turn directly on which figure is used and how it is defined.
Minimum wage compliance
The National Minimum Wage and National Living Wage are tested against qualifying pay, and the rules on what counts are narrower than many employers expect. Overtime premiums, shift premiums, tips, gratuities and most allowances do not count towards minimum wage pay [21], even though they are part of gross salary. The National Living Wage for workers aged 21 and over rose to £12.71 an hour from 1 April 2026 [22].
This creates a trap. An employee whose gross pay comfortably clears the minimum wage can still be underpaid once the non-qualifying elements are stripped out, because the test runs on a figure closer to basic pay than to gross. Deductions connected with the job, such as the cost of a required uniform, can push qualifying pay below the legal floor even where the headline gross looks healthy [23]. Employers running payroll by hand need to check the qualifying figure for each worker, not the gross total.
Pensions and salary sacrifice
Salary sacrifice arrangements change gross pay directly, because the employee agrees to give up part of their cash pay in return for a non-cash benefit such as a larger pension contribution. The result is a lower gross salary, so both the employee and the employer pay less National Insurance on the reduced figure [24]. This is a legitimate and common arrangement, but it has a hard limit.
An employer must ensure that a salary sacrifice does not reduce an employee's cash earnings below the National Minimum Wage, which again brings the basic-versus-gross distinction into play [25]. Accountants managing this across several clients typically rely on a payroll bureau platform that flags the qualifying-pay floor per scheme, so a sacrifice that is fine for one employee but breaches the limit for another is caught before the payrun is submitted.
Worked example: from basic to net
A single worked example shows how the figures connect. Consider an employee in England on an annual basic salary of £30,000, paid monthly, who earns £300 of overtime and a £200 bonus in one month, with a standard 1257L tax code and no pension or student loan deductions.
| Line | Amount |
|---|---|
| Basic pay (monthly) | £2,500.00 |
| Overtime | £300.00 |
| Bonus | £200.00 |
| Gross pay for the month | £3,000.00 |
| Less: PAYE income tax | around £291.00 |
| Less: employee National Insurance | around £140.00 |
| Net pay | around £2,569.00 |
The basic salary for the month is £2,500, but the gross salary is £3,000 once overtime and the bonus are added, and that £3,000 is the figure PAYE and National Insurance are calculated on [26]. The exact tax and National Insurance depend on the cumulative position across the tax year, but the structure holds: basic sits inside gross, gross is taxed, and net is what remains [27]. Separately, the employer pays its own National Insurance at 15% on the slice of this gross pay above the monthly Secondary Threshold [28].
Work out take-home pay from any gross salary
Before quoting a salary or signing off a payrun, an employer can size the net figure with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross salary and shows the deductions line by line.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
Basic salary and gross salary describe two different stages of the same pay packet. Basic is the fixed contractual rate that defines a role and anchors pay reviews, while gross is the full taxable total for a period, basic plus every variable extra, and the figure the entire payroll calculation runs on. Treating them as interchangeable is how overtime gets taxed in the wrong period, how a salary sacrifice quietly breaches the minimum wage, and how an employer under-budgets the real cost of a hire.
The practical discipline is to carry both figures deliberately: basic for the contract and the pay review, gross for tax, National Insurance, pensions and the minimum wage test. As statutory pay rules and National Insurance thresholds continue to shift each April, the employers who keep the two figures distinct on every payslip are the ones least likely to face an HMRC correction later. HMRC-recognised payroll software that itemises each gross element and submits Real Time Information automatically removes most of the room for that error.
Frequently asked questions
Is basic salary the same as gross salary?
No. Basic salary is the fixed contractual rate for an employee's standard hours, while gross salary is the total amount earned in a pay period before deductions, including overtime, bonuses, commission and allowances. The two are equal only in a period where the employee receives no variable pay at all [29].
Does gross pay include overtime and bonuses?
Yes. Gross pay is the full taxable total for the period, so it includes basic pay plus overtime, bonuses, commission, shift premiums and most allowances. Each of these elements is subject to PAYE income tax and, above the relevant threshold, to National Insurance [30].
Why is my net pay lower than my gross salary?
Net pay is gross salary after deductions. The main deductions are PAYE income tax on pay above the £12,570 Personal Allowance, employee National Insurance at 8% on earnings between £12,570 and £50,270 a year, and any pension or student loan contributions [31]. These come off the gross figure to leave the net amount paid into the employee's account.
Which figure is used to check minimum wage compliance?
Minimum wage is tested against qualifying pay, not gross salary. Overtime premiums, shift premiums, tips and most allowances are excluded from the test, so the figure used is closer to basic pay than to gross [32]. An employee whose gross pay clears the minimum wage can still be underpaid once the non-qualifying elements are removed.
