Here is a useful guide to pass on to your young job starters entering the workplace for the first time.

1.     Make sense of payslips – For those starting out in the workplace, the first payslip can be very confusing, but it contains important information, including:

·        Payroll number

·        Gross income – the income before any taxes and deductions have been taken

·        Net pay – what’s left after deductions have been taken

·        A tax code

It’s important to get to grips with what deductions will be made to understand how much income will be left each month. The most common deductions on payslips are tax, pensions, and Student Finance Repayments which are explained below.

2.     Get to grips with Tax – Income Tax is charged on most types of income including a salary. However, people don’t usually pay Income Tax on all their income because they will typically qualify for the Personal Allowance. This is the amount of money someone can earn each tax year before they start paying Income Tax which is £12,570 for the 2025/26 tax year. Income Tax is then paid at 20% on earnings above £12,570 and 40% above £50,270 and 45% above £125,140. It’s important for people to check they are on the right tax code and paying the correct amount of Income Tax. This can be done by checking www.gov.uk/check-income-tax-current-year.

Income Tax isn’t the only deduction taken from your salary; National Insurance contributions are also required, at a rate of 8% on earnings between £12,570 and £50,270, and 2% on earnings above that. These payments will help build an entitlement to certain benefits including the State Pension.

Tax can be confusing, so we’ve created an example of monthly earnings after Income Tax and National Insurance deductions. In this example a person has an annual salary of £24,000, pays 5% into their workplace pension (which is deducted from their gross income), and is on Plan 2 for their student loan.

–             Pension contribution (5%): £1,200/year

–             Adjusted gross income: £22,800/year

–             Personal Allowance: £12,570/year (tax-free)

–             Taxable income: £10,230/year

–             Income Tax (20%) on £10,230: £2,046.00

–             National Insurance (8%) on £10,230: £818.40

–             Total deductions: £2,864.40/year

–             Annual net pay: £19,935.60

–             Monthly net pay: £1,661.30

Student Loan (Plan 2):

–             Threshold: £28,470/year

–             Earnings below threshold = No repayment due

3.     Make the most of pensions – Auto-enrolment means that all employees between age 22 and their State Pension age with earnings of more than £10,000 annually, are automatically enrolled into their workplace pension. If employees are within the age bracket 16-21, they can opt into their pension scheme if they wish to do so.

Currently, employers are required to make a 3% minimum contribution with employees required to pay 5% to bring the total pension contribution to 8%. Some employers pay more than the minimum contribution of 3% and employees may be able to pay less into their scheme as a result. There are also companies where some employers may match pension contributions made by employees. Contributions made into a pension are usually free of Income Tax and employers who offer a salary sacrifice arrangement are also able to save employees National Insurance costs on their contributions. This means basic rate taxpayers will usually save 20% in income tax on contributions and may save a further 8% in National Insurance costs. It is widely recognised that contributions that total 8% of salary (3% from the employer and 5% from the employee) are not enough and are unlikely to provide the quality of retirement most people imagine. If employers are willing to match additional contributions it can make a significant difference to the size of the final pension pot. For example, someone in their 20s, saving just 1% more each year into a workplace pension can boost future savings by 25% if their employers were to match this.

4.     Appreciate the cost of delay – If someone aged 25 contributed a total of £2,400 per year into their pension (including both employer and employee contributions) for 30 years, they could build a pension pot worth £167,426 by age 55, assuming a 5% annual investment return. However, if they delayed saving for 10 years and only started contributing at age 35, they would need to contribute £4,825 per year for the remaining 20 years to reach a similar pension pot of £167,520 by age 55. This clearly shows the cost of delay; waiting 10 years more than doubles the annual contribution required to achieve the same outcome. For many, this higher contribution may be unaffordable, making it difficult or even impossible to catch up. Starting early allows savings to grow over time and benefit from the power of compounding.

5.     Understand payments on Student loans – When someone starts repaying their loan and how much they repay depends on their repayment plan, which can be checked in their student loan repayment account. Loan repayments typically begin at the start of the tax year following the completion or withdrawal from a course.

For example, if a student finishes their course in June 2025, their first student loan repayment would be deducted in the 2026/27 tax year, starting from April 2026. However, repayments only start when the person is earning over the ‘repayment threshold’. For instance, a person who graduates in 2025 is likely to be on Plan 2, meaning they will only start making repayments once their income is over the repayment threshold, which is currently £28,470 (for Plan 2 loans) a year.

Student loan repayments are usually collected via PAYE, with 9% of salary that exceeds the current threshold used to pay off the loan. Loans will also be cancelled after a certain period of time if they’ve not already been paid off in full – this can vary between 25 and 40 years depending on the rules at the time the loan was taken out. Some companies have student loan reimbursement schemes to help employees with their student loan repayments. The monthly repayment amount does not depend on the amount of the student loan, it is based purely on the amount earned. This means that someone with £20,000 of debt will make the same monthly repayments as someone with £50,000, if they earn the same amount.

6.     Check out workplace perks – Many employers offer their staff various benefits, so it is important to know what is on offer. These can be anything from support with health and fitness, e.g. discounted gym memberships, health and fitness apps and devices, or discounts on shopping, support with childcare and elderly care costs and debt support. Some of these are offered through salary sacrifice which means it is paid through company payroll using pre-tax salary; meaning less Income Tax and National Insurance are paid which can offer significant savings.

7.     Create a monthly budget – It’s always a good idea to create a monthly budget so that people can understand what they can afford to spend and avoid getting into debt. This should include all income and outgoings such as fixed costs (i.e. mortgage or rent, council tax, energy and water and contracts for TV and broadband subscriptions) and then other costs such as supermarket shopping, days and nights out or clothes and makeup. Alternatively, budgeting apps which integrate with bank accounts can be useful to build a budget in one place and give a clear overview of all accounts including savings and show all transactions in one place, as well as how spending compares to previous months. Through such apps, it is possible to set multiple budgets for groceries, eating out, entertainment etc, as well as setting savings and debt repayment goals.

8.     Consider Savings – It’s always a good idea to have a pot of money for unexpected costs and for the future. Whilst a workplace pension provides a great way to save for retirement, there are also other options for those looking to save in general.

An ISA is a tax efficient savings option for those wanting to build future savings. There are several different types of ISA available, with the two most common being a ‘cash’ or a ‘stocks and shares’ ISA. £20,000 can be saved per person each tax year into an ISA without having to pay tax on any savings interest or growth in the investments. Many workplaces offer their employees access to Workplace ISAs and contributions can conveniently be taken directly from pay.

Some companies also offer employees access to Save as You Earn (SAYE) (sometimes referred to as share save plans) as a way to invest in their future. These plans run for three or five year terms, and employees can save between £5 and £500 per month. At the end of the plan’s term, if the company’s share price has fallen, employees can receive all their savings back. If the share price is higher than the fixed price agreed at the start of the plan, employees can use their savings to buy shares at a lower cost and sell them to realise any returns.

The Share Incentive Plan (SIP) is another popular type of share plan, enabling employees to purchase shares in their company by making monthly contributions of between £10 and £150. Employers may also provide matching shares so that the employee can receive up to two additional shares for each share purchased. Some companies will also use the SIP to gift ‘free shares’ of up to £3,600 in any tax year to employees.

9.     Review spending – Regular financial check ins can be a great way to become more aware and adjust spending accordingly. If, after a spending review, a person’s outgoings are more than they would like it to be, they may be able to reduce their costs by checking bank and payment services for recurring payments. This may be possible by shopping around to lower household bills such as insurance, phone and broadband providers, and cancelling unused subscriptions. Discount vouchers are also available online and many workplaces offer employee discount schemes, which can be useful for the weekly shop or big purchases, such as if a washing machine breaks, and also activities like eating out and holidays.

10. Understand good and bad debt – Debt comes in many forms such as loans, credit cards or store cards. A mortgage is a form of ‘good debt’ which should be reviewed occasionally to ensure you have a good deal. On the other hand, debt with high interest payments, such as payday loans, overdrafts, and credit cards can get out of control if they are not repaid quickly which could impact financial and mental wellbeing.

There are varying levels of interest that different debt providers charge. For example, credit cards and overdrafts may have rates as high as 40%, with payday loans having rates of 1,500% and more! By shopping around, it may be possible to move to a lower interest rate, and some credit cards even offer 0% on balance transfers for a period of time.

Research from WEALTH at work indicated that workers thought that their biggest financial concerns for the year included being in debt (29%). So, it’s important for anyone who is struggling with debt to know that there is support available from reputable sources. Many employers offer Employee Assistance Programmes (EAP) that includes debt management support. This support often ranges from budgeting advice to establishing the root cause of someone’s debt issues. Free services such as MoneyHelper, Citizens Advice or National Debt Line are also available.

 Jonathan Watts-Lay, Director, WEALTH at work, comments; “Starting a first job is an exciting time. For some, it can mean the first time they are having to manage their own money. It is important that employees entering the workplace are taught about budgeting, savings and responsible borrowing so they can take control of their finances. Many leading employers provide financial education in the workplace to help employees at the start of their career learn the basic principles of money management, as well as to understand all the savings and benefits on offer to build financial resilience.”