👨👩👧👦 Meet the Baker Family
The Baker family has many different sources of income. Understanding their situations helps us learn about wages, salaries, and other types of income.
The Baker Family Tree
P
Philippe (70s)
State Pension + Work Pension
L
Lisa (70s)
State Pension
D
Daniel (40s)
Salary: £45,000/year
S
Sue (40s)
Salary: £25,000/year
R
Richard (40s)
Self-employed (variable)
M
Marion (40s)
Salary: £24,000/year
J
Jacob (19)
Wages: £11/hour
So
Sophie (17)
Pocket money
B
Ben (14)
Pocket money + odd jobs
What You Need to Learn
- Understand the difference between wages and salary
- Know the difference between gross pay and net pay
- Understand payslip deductions
- Know different sources of income (earned and unearned)
- Understand disposable income
💰 Wages vs Salary
J Jacob's Wages
"I work part-time as a waiter at a restaurant. I get paid £11 per hour. Last week I worked 15 hours, so I earned £165. This week I might work 20 hours - my pay changes depending on my hours."
D Daniel's Salary
"I earn a salary of £45,000 per year from my insurance job. That's £3,750 per month before tax. I get paid the same amount every month, regardless of whether I work extra hours or take a few days off."
| Wages | Salary |
|---|---|
| Paid per hour worked | Fixed annual amount |
| Income varies with hours | Same amount each month |
| Often weekly payment | Usually monthly payment |
| Example: Jacob (£11/hour) | Example: Daniel (£45,000/year) |
💡 Remember: Wages = paid by the HOUR. Salary = paid a fixed amount per YEAR.
📊 Gross Pay vs Net Pay
M Marion's Payslip
"My salary is £24,000 per year - that's £2,000 per month GROSS. But after tax, National Insurance, and pension contributions are taken out, I only receive about £1,585 in my bank account. That's my NET pay."
📋 Marion's Monthly Payslip
| Gross Pay | £2,000.00 |
| Income Tax (PAYE) | -£190.50 |
| National Insurance | -£144.32 |
| Pension Contribution | -£80.00 |
| Net Pay (Take Home) | £1,585.18 |
| Gross Pay | Net Pay |
|---|---|
| Total earnings BEFORE deductions | What you actually RECEIVE |
| The "headline" amount | The "take home" amount |
| Marion: £2,000/month | Marion: £1,585.18/month |
🎯 EXAM ALERT: Gross = BEFORE deductions. Net = AFTER deductions. Remember: "Net" is what's LEFT in the net!
Quick Check: Wages, Salary & Pay
📄 Payslip Deductions
Several items are deducted from your gross pay before you receive your net pay:
| Deduction | What It Is | What It Pays For |
|---|---|---|
| Income Tax (PAYE) | Tax on earnings above Personal Allowance | Public services (NHS, schools, roads) |
| National Insurance | Contribution to state benefits | State Pension, NHS, benefits |
| Pension | Savings for retirement | Your future retirement income |
| Student Loan | Repayment if you have a loan | Paying back university costs |
💡 PAYE: Pay As You Earn - tax is deducted by your employer BEFORE you receive your pay.
Card Sort: Additions vs Deductions
Sort these payslip items into additions (increase pay) or deductions (decrease pay):
💵 Sources of Income
Earned Income vs Unearned Income
| Earned Income (from work) | Unearned Income (not from work) |
|---|---|
| Wages (Jacob - waiter) | State Pension (Philippe & Lisa) |
| Salary (Daniel, Sue, Marion) | Interest from savings |
| Self-employed profit (Richard) | Rental income from property |
| Commission, bonuses, tips | Dividends from shares |
| Overtime payments | Inheritance |
P Philippe's Income Sources
"Lisa and I are retired. Our income comes from the State Pension, plus the work pension I built up at the shipyard. We also get a small amount of interest from our savings. None of this is from working now - it's all unearned income."
🎯 Scenario: Richard's Variable Income
R Richard Explains
"As a self-employed potter, my income changes every month. Some months I sell lots of pottery and earn £2,500. Other months might only be £1,200. I don't get a regular payslip - I have to manage my own tax through self-assessment."
✓ Advantages of Self-Employment
- Be your own boss
- Flexible working hours
- Keep profits you make
- Choose your own projects
✗ Disadvantages of Self-Employment
- Variable income - not guaranteed
- No paid holidays or sick pay
- Must manage own tax (self-assessment)
- No employer pension contributions
⚖️ National Minimum Wage
The government sets minimum hourly rates that employers MUST pay workers:
| Age | Minimum Rate (2023/24) | Baker Example |
|---|---|---|
| 23 and over (National Living Wage) | £10.42/hour | Daniel, Sue, Richard, Marion |
| 21-22 | £10.18/hour | - |
| 18-20 | £7.49/hour | Jacob (19) - paid £11, above minimum |
| Under 18 | £5.28/hour | Sophie (17) if she worked |
⚠️ Note: Jacob earns £11/hour, which is MORE than the minimum wage for his age (£7.49). Employers can pay more than minimum, but never less!
True or False
💳 Disposable Income
S Sue's Budget
"After paying tax and essential bills like the mortgage, utilities, and food, Daniel and I have some money left over. This is our disposable income - we can choose to save it or spend it on things we want."
Disposable income = Income left after tax and essential expenses
📋 Sue's Monthly Budget
| Net Pay (after tax) | £1,750 |
| Mortgage share | -£500 |
| Bills & utilities | -£200 |
| Food & essentials | -£400 |
| Transport | -£150 |
| Disposable Income | £500 |
Fill in the Blanks
Flip Cards: Key Terms
📝 Practice Quiz
📚 Summary
| Topic | Key Points |
|---|---|
| Wages | Paid per hour worked - varies with hours (Jacob) |
| Salary | Fixed annual amount - same each month (Daniel) |
| Gross Pay | Total earnings BEFORE deductions |
| Net Pay | What you receive AFTER deductions (take home) |
| Deductions | Tax, National Insurance, Pension, Student Loan |
| Earned Income | From work - wages, salary, self-employment |
| Unearned Income | Not from work - pensions, interest, dividends |
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