Introduction



It’s a nice feeling to get paid at the end of every month for all the effort you put in your work!!!

As an employee your work is remunerated in the form of a salary which is subject to deductions for the social insurance system, payment of taxes to the state and contribution to your pension plan.

Taxes, social insurance system and pension plans are paid by the employer and by you as an employee through an amount withheld on your payslip.

Depending on the country you are working in, different amounts are paid. In Italy for example, an employee pays only personal income tax from the payslip. The amount of personal income tax paid is calculated in different percentage based on the personal yearly gross income. Same applies for the deductions for the social insurance system and the contribution to your pension plan.

Remember to always keep an eye on these calculations, although the percentage of errors is quite low, you may be paying too much taxes or receiving unexpected deductions!

Task



Your task is, now, to understand that the net amount of pay you receive is been reduced by taxes, National Insurance contributions and pension contributions.

During the task you should get a broad understanding of how deductions for income tax, national insurance contributions and pension contribution are calculated in the country you are working in.

The focus is also in checking your payslip and spotting possible errors in calculations and seek for additional help and advice on taxes or for your pension plan.

It is useful to make clear that all the elements above can be different from country to country and the specific regulations of each country need to be considered.

At the end of the process you will be able to explain why your net payment is different from your agreed salary.

Process

Read the “Understanding your payslip” text at https://www.moneyadviceservice.org.uk/en/articles/understanding-your-payslipand see what are the general rules for taxation, deductions and pension contributions on your payslip. Carry out the “Exercise – Taxes and deductions on your Pay Slip” together with your classmate.


Read the article “The UK income tax system: Full-time employment” (https://www.expatica.com/uk/finance/The-UK-income-tax-system-Full-time-employment_103165.html) and answer the questions in the “Exercise – True or False”.


Check the following website http://ec.europa.eu/social/main.jsp?catId=8589 and see what social security system is in place in the country you are working in. The social insurance payments carried out by the employer and by the employee on the payslips generally in all countries cover the following: Sick pay; Maternity pay; Family support cheques; Blood donation; Marriage Leave; Layoff benefit; Redundancy pay; Unemployment benefit.

Each country has established different percentages for social security contributions and pensions based on personal annual gross salary, check the internet and see how to calculate the percentage of social security contributions and pensions in the country you live in.

 

Conclusion

Now you should know all the elements included in the salary and in particular how to identify the percentages of tax, social security and pension contributions in the country you are working in.

 

Evaluation

  • The learner should be able to identify his/her net income, considering the amount of deductions and payments withheld by the employer for taxes, social insurance and pension.
  • For a full description of ECVET, Skills, Competence and Knowledge for this module see Methodology Handbook and Competence Matrix