Lesson 4 – Understanding the World of Work

1

Understanding the World of Work

Look at the payslip for Sam Green who is a senior stylist in a national chain of hairdressers.

DATE	EMPLOYER		EMPLOYEE
30/06/2018	Brushes Hair Salon		S Green
DEPARTMENT	N.I. NUMBER	TAX CODE	PAY METHOD	PERIOD
Hairdressing	YX542789	1185L	BACS	Month 3
DESCRIPTION	UNITS DUE	DEDUCTIONS	TOTALS TO DATE
Basic Pay			Total Gross Pay	£4,875.00
			Taxable Pay	£1,912.50
			Tax Paid	£352.80
		Tax 117.60	Employee NI	£332.28
		N.I 110.76	Employer NI	£382.11
		Pension 48.75	Employee Pension	£146.25
			Employer Pension	£97.50
HOURS	GROSS PAY	DEDUCTIONS	NET PAY
Standard 35 hours per week	1,625.00	277.11	£1,347.89

🤔 DNA: What do you know already?

1. What is the tax called that you can see on the payslip in deductions?

2. What does NI stand for?

3. Why is this Month 3?

4. What is the significance of the numbers in the tax code?

5. What is Sam’s take-home pay?

Click to reveal the answers

1. Income Tax
2. National Insurance
3. The tax year runs from April to April, so June is the 3rd month of the tax year (April = 1, May = 2, June = 3).
4. If you add a zero to the numbers in your tax code (1185L), it tells you your personal tax allowance: £11,850 — the amount you can earn before paying Income Tax.
5. £1,347.89 (Net Pay = Gross Pay − Deductions)

2

Moving on from School: The World of Work

This lesson will prepare you for understanding how the world of work operates financially.

🎯 By the end of this lesson, you will know:

The different ways you can be employed or earn money
The difference between Income Tax and National Insurance
The meaning of the most important financial information included in official paperwork such as bank statements and pay slips
How student finance works

3

Next Steps After School: Apprenticeships

An apprenticeship combines practical training in a job with study.

As an apprentice you will:

Work alongside experienced staff
Gain job-specific skills
Earn a wage and get holiday pay
Get time for study related to your role (usually one day a week)

Apprenticeships can take between 1 to 5 years to complete, depending on their level (intermediate, advanced, higher and degree level apprenticeships). If you take an apprenticeship you will be paid for it.

The minimum you’ll get will be the National Minimum Wage for apprentices (which in 2018 was £3.70 per hour), however some employers will pay more.

You’ll also be entitled to at least 20 days paid holiday per year, plus bank holidays.

✏️ Activity: Apprentice Earnings

1. An average working week is 35 hours. What is the minimum an apprentice can earn per week?

£ per week

2. Are there any costs of which you might have to pay? Think about this and write your answer below.

Click to reveal the answers

1. £129.50 per week (35 hours × £3.70)

2. Income Tax, National Insurance, pension contributions, travel costs, work clothing, food, etc.

4

Next Steps After School: Employment

There is a wide range of work available for school and college leavers. You can be employed on different contracts and in different ways.

For those going straight into work from school or college there is a National Minimum Wage. This varies according to your age, and the rates change every April.

For 2018 this was:

Under 18 – £4.20 per hour
18–20 – £5.90 per hour
21–24 – £7.38 per hour
Over 25 – £7.83 per hour

The National Minimum Wage is exactly that – it’s the minimum an employer can pay. Employers can choose to pay more than this but must pay at least the National Minimum Wage for the age of person they employ.

📄 Employment Terms – Match the Definitions

Click a term on the left, then click its matching definition on the right.

Commission

Salary

Hourly rate

Piece work

Zero hours contract

The “gig” economy

Full time

Part time

A fixed annual amount, paid monthly regardless of hours

No guaranteed hours; you work when the employer needs you

A percentage of sales you make is added to your pay

Typically 35–40 hours per week with full benefits

Short-term, freelance tasks (e.g. Uber, Deliveroo)

Paid a set amount for each hour worked

Paid for each item or unit you produce

Fewer hours than full time, often with fewer benefits

5

Earnings

There are a number of things which are taken off the amount you earn before you receive it – you don’t always get to take home everything you earn. These are called deductions.

Income Tax

Tax based on your earnings

National Insurance

Tax on earnings to help pay for state benefits such as state pension and sick pay

Pension

Often paid by both the employer and employee to build up a pension pot for retirement

Student Loan

Paying back money borrowed (plus interest), but only if you earn over the threshold

Did you know? According to official UK government data, £185 billion was collected from Income Tax payments in 2017, an increase of £8 billion from the year before.

When you receive your pay from your job, you’ll most probably also receive a payslip. This piece of paper contains information about you and your earnings.

6

Income Tax

Income Tax is charged at different rates depending on how much you earn. This is known as Tax Banding.

20%

On anything you earn above £11,850 up to £46,350

40%

Any annual income above £46,350 up to £150,000

45%

Any annual income over £150,000

Those on the lowest income pay no Income Tax at all, but the more you earn the higher the amount of Income Tax you pay (although you take more home too!).

Charging different rates of tax at different levels of income is known as Tax Banding.

Did you know? If you add a zero to the numbers in your tax code it will tell you how much you are allowed to earn before paying Income Tax. For example, if your code is 1185L, your personal tax allowance will be £11,850.

7

Income Tax: Worked Examples

Using the 2018/19 figures: Personal Tax Allowance £11,850 • Basic Rate 20% (up to £46,350) • Higher Rate 40% (£46,350–£150,000).

🧮 Example 1: A Cleaner earning £15,000/year

Income (£)	Tax rate (%)	Tax paid (£)
11,850	0	0
3,150	20	630
Total: 15,000		630

The cleaner pays £630 Income Tax per year (just over £50 per month). This is 4.2% of their income.

🚚 Example 2: A Lorry Driver earning £30,000/year

Income (£)	Tax rate (%)	Tax paid (£)
11,850	0	0
18,150	20	3,630
Total: 30,000		3,630

The lorry driver pays £3,630 in Income Tax per year (just over £300 per month). This is 12.1% of their income.

💻 Example 3: A Software Developer earning £70,000/year

Income (£)	Tax rate (%)	Tax paid (£)
11,850	0	0
34,500	20	6,900
23,650	40	9,460
Total: 70,000		16,360

The software developer pays £16,360 in Income Tax per year (just over £1,360 per month). This is 23.37% of their income.

🧠 Your Turn: Calculate the Tax

Enter an annual salary below and we’ll calculate the Income Tax using 2018/19 bands.

Annual Salary: £

How does the Personal Tax Allowance vary across our employees?

How does Tax Banding attempt to ensure a fairer tax system?

8

Why Do We Pay All These Taxes?

A brief history of Income Tax in the UK.

Income Tax was introduced by William Pitt the Younger more than 200 years ago when he needed the money to pay for the wars against Napoleon, the leader of France.
For many years, Income Tax was only paid by the very rich, but in the 20th century it began to rise and, by 1930, 10 million people were paying Income Tax.
The rates rose again to pay for the Second World War and, in 1944, the system of Pay As You Earn (PAYE) was introduced.
Today, Income Tax is the biggest individual source of income for the government and accounts for nearly 25% of government income. This, together with the income the government raises from other sources, is used to pay for all the various areas of government spending.

9

How Much Tax Do We Pay as a Country?

The table below shows the money that was raised in the UK through taxation for 2016/17. There are different ways the government collects taxation from individuals and businesses.

PUBLIC SECTOR REVENUE 2016/2017	£ BILLION
Income Tax	£182
National Insurance	£126
Excise duties	£48
Corporation tax	£43
VAT	£138
Business Rates	£28
Council tax	£30
Other (taxes)	£69
Other (non-taxes)	£51
TOTAL	£715

⭐ Discussion

Which of these taxes affect you now, and which will affect you in the future?

10

Why Do We Pay All These Taxes?

Here’s where the government spends the money it raises from taxation.

UK GOVERNMENT SPENDING 2016/17	£ BILLION
Debt interest	£39
Other (inc. EU spending)	£49
Public order and safety	£34
Housing and environment	£34
Industry, agriculture and employment	£24
Defence	£46
Education	£102
Transport	£29
Social protection	£240
Social services	£30
Health	£145
TOTAL	£772

Source: Office for Budget Responsibility 2016/17

⭐ Discussion Questions

Which parts of the public sector receive the most funding?

In 2016/2017 the government raised £715 billion in tax but spent £772 billion. Is this a problem?

In your opinion, do you think tax is a good thing?

11

National Insurance

National Insurance is another deduction from your earnings that funds state benefits.

Everyone receives their National Insurance number just before their 16th birthday. It will stay with you for life.
Most people who work have to pay National Insurance contributions. National Insurance is paid at approximately 12% of your income.
In 2018/19 there is a lower earnings limit of £8,424, below which you pay no National Insurance at all.
There is also an upper threshold of £46,350, above which you only pay 2% of your income.
National Insurance contributions help to build up your entitlement to certain benefits, such as the State Pension.

🧮 Example 1: Teacher earning £23,000/year

On the first £8,424 of their salary, National Insurance is £0.

They pay 12% on the remaining £14,576 of their salary.

= £1,749 per year (or £146 per month)

They do not earn enough to reach the upper threshold.

💻 Example 2: Lawyer earning £60,000/year

On the first £8,424 of their salary, National Insurance is £0.

They pay 12% on the next £37,926 of their salary = £4,551 per year.

They pay 2% on the final £13,650 of their salary = £273 per year.

So, in total, the lawyer pays £4,551 + £273 = £4,824 per year (or £402 per month)

🧠 Your Turn: Calculate National Insurance

Enter an annual salary to calculate the NI contributions using 2018/19 thresholds.

Annual Salary: £

12

Average UK Annual Household Earnings

This is the UK annual household earnings data for the country in 2019.

£29,600

Median equivalised disposable income

£35,900

Mean equivalised disposable income

Equivalised means it takes account of household size: bigger households need more income.

Disposable means it’s the pay after income tax and NI, but before housing, pension and other costs.

📊 Income Distribution

13

Pay Slips

A payslip is a document from your employer that shows your earnings and deductions for the pay period. Let’s analyse two real payslips.

📄 Payslip 1: Mr A Pearson – Somebody & Co Ltd

Date / Tax Period	Employee Number	Name	NI Number / Letter
31 Jan 2014 / Mth 10	123456A	Mr A Person	AB123456C / D

Payments				Deductions
Description	Units	Rate	Amount	Description	Amount
Basic Pay	1.00	950.00	£950.00	Tax	£37.40
Overtime	5.00	10.00	£50.00	NI	£35.10
				Pension	£25.00
				Sports Club	£1.00
Total Payments			£1,000.00	Total Deductions	£98.50

Tax Code / Basis	Method of Payment	Net Pay
944L / 1	BACS	£901.50

This Period Totals		Year to Date Totals
Gross Pay	£1,000.00	Gross Pay	£10,000.00
Taxable Pay	£975.00	Taxable Pay	£9,750.00
		Tax	£360.20
		NI	£327.60
		Pension	£275.00

How much does Mr A Pearson receive in his bank account each month?

How much does he pay towards his pension each month?

How much tax has he paid this year, so far? How much NI? What’s the difference?

How much income does Mr Person make before tax is applied? How much is he paid a year?

Click to reveal the answers

Bank account: £901.50 (Net Pay)
Pension: £25.00 per month
Tax so far: £360.20 | NI so far: £327.60 | Difference: £32.60
Gross Pay: £1,000.00 per month | Annual: £12,000 per year

📄 Payslip 2: Mr John Smith – Company Name Ltd

Payroll No.	Name	Tax Period	Pay Day	Tax Code
123456	Mr John Smith	Tax Week 12	01/01/2016	CNPayroll

Earnings			Deductions
Description	Units / Rate	Amount	Description	Amount
Basic Pay		£2,008.33	Tax (code 4321A)	£233.33
			NI (category A)	£169.40
			Pension	£50.00
			Student Loan Plan X	£10.00
Total Earnings		£2,008.33	Total Deductions	£462.73

Annual Salary	NI Number	Net Pay	Payment Method
£25,000.00	AB 12 34 56 C	£1,620.60	BACS

Employer’s Contributions	Amount
NI (category A)	£100
Employer’s Pension FL	£50.00

How much does Mr Smith pay towards his student loan each month?

When is Mr Smith paid each month?

How much is Mr Smith paid each month (take-home)?

How does Mr Smith receive his pay?

Click to reveal the answers

Student loan: £10.00 per month
Pay date: 1st of each month (01/01/2016)
Take-home pay: £1,620.60 per month
Payment method: BACS (Bankers' Automated Clearing Services – electronic bank transfer)

14

Bank Statements

A bank statement shows all the money going in and out of your account. Let’s analyse this statement for Bit Manufacturing Ltd at Bickslow Bank.

Bickslow Bank — Account: 111-234-567-890 — Bit Manufacturing Ltd

Date	Payment Type	Detail	Paid In	Paid Out	Balance
		Balance Brought Forward			8,313.30
27/12/2020	Fast Payment	Amazon		132.30	8,181.00
28/12/2020	BACS	eBAY Trading Co.		515.22	7,665.78
01/01/2021	Fast Payment	Morrisons Petrol		80.00	7,585.78
06/01/2021	BACS	Business Loan	20,000.00		27,585.78
06/01/2021	BACS	Jumes White Media		2,416.85	25,168.93
08/01/2021	Fast Payment	ATM High Street		100.00	25,068.93
10/01/2021	BACS	Accorn Advertising Studios		150.00	24,918.93
10/01/2021	Fast Payment	Marriott Hotels		177.00	24,741.93
10/01/2021	Fast Payment	Abelio Scotrail Ltd		122.22	24,619.71
14/01/2021	Fast Payment	Cheque 000234		1,200.00	23,419.71
15/01/2021	Int. Bank	Interest Paid	9.33		23,429.04
23/01/2021	DD	OVO Energy		270.00	23,159.04
23/01/2021	BACS	Toyota Online		10,525.40	12,633.64
23/01/2021	BACS	HMRC		1,000.00	11,633.64
25/01/2021	SO	OVLA		280.00	11,353.64
27/01/2021	EBP	Michael Kor Salary		1,554.00	9,799.64
28/01/2021	DD	BOS Mastercard		4,000.00	5,799.64

🔎 Bank Statement Analysis

What do the terms BACS, DD, EBP, Fast Payment and SO mean?

On what date was the salary paid?

How much interest was earned on the balance of the account?

What was the most recent balance of the account?

What was the loan used for?

Click to reveal the answers

BACS: Bankers' Automated Clearing Services (electronic transfer, takes 2–3 days)
DD: Direct Debit (automatic payment set up by the payee)
EBP: Electronic Bill Payment
Fast Payment: Faster Payments (usually instant or same day)
SO: Standing Order (automatic payment set up by the account holder)
Salary paid: 27/01/2021 (Michael Kor Salary via EBP)
Interest earned: £9.33 (on 15/01/2021)
Most recent balance: £5,799.64
Loan used for: The £20,000 business loan appears to have been used to fund business expenses such as the Toyota purchase (£10,525.40), media/advertising costs, and other operational expenses.

15

Student Finance: Why Go to University?

If you decide to go to university you can apply to the Students Loans Company (SLC) for a Tuition Fees Loan and a Maintenance Loan to cover your day-to-day living costs.

You will then owe money to the SLC but you do not have to pay it back until you leave university, are in work and earning above a certain level. This applies to both the Tuition Fee Loan and Maintenance Loan.

🎓 Benefits vs Costs of University

Sort these items into the correct category.

Better job chances when qualified

Loans to pay back

Loans only repaid when earnings reach a certain level

Using up savings

Better social activities

Lose touch with friends from home

Living independently

Leaving the family home

Financial Benefits

Financial Costs

Non-Financial Benefits

Non-Financial Costs

💰 How Much Would You Owe?

If you did a 3-year university course, and borrowed the maximum Maintenance Loan each year, at the end of the course you would owe the SLC approximately:

£27,750

Tuition Fees Loan

+ £26,100

Maintenance Loan

= £53,850

Total Loans

This sounds like a lot of debt, but it is very important to have the full picture about when and how much you will have to repay:

1

You only start to repay any loans once you have got your degree, left university and have a job earning over a certain amount.

2

You only repay when, or for as long as, you earn more than £25,000 per year.

3

After 30 years, all remaining debt is wiped.

4

The loan repayments are made automatically.

You repay 9% of anything you earn over £25,000. So, if you earn £30,000 a year you would pay back 9% of £5,000. That’s £450 in a year.

If your income drops below £25,000 your repayments will stop and only re-start again once you earn above £25,000. The £25,000 threshold rises a little bit every year to account for inflation.

🧠 Student Loan Repayment Calculator

Enter your salary to see how much you would repay each year.

Annual Salary: £

Q

End of Lesson Quiz

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