¿Have you ever read your payslip? If you feel that it looks gibberish, it’s time for you to understand where your money goes and how your salary changes from gross to net.
4 min read
Every month your salary is deposited directly into your account and in theory it’s quite simple to distinguish gross income from net income. But what really happens with the remaining money? Where did it go? Maybe you think it’s better not to know, so you don’t focus too much on what happens with your taxes or payments to social security. However, we think it’s really important for you to know what you contribute and what happens to your money.Your money, your decisions. So let’s take a closer look at what your payslip really means. To make the most out of this article it might be useful to pull out your latest payslip and have it next to you as you read this.
Payslip header
It's located at the top of the page and it compiles the basic data of both the employer and the employee. On the left side you'll find company information such as the name and address, CIF and social security number. Whereas on the right side you'll find information corresponding to the yourself, the employee – ID number, social security number, position in the company, seniority, etc.
Settlement period
Further down, right after the heading, you can see the dates to which the payslip appertains; the time frame for which the employee is being paid. The days to which this payment corresponds must be clearly indicated, for example: from January 1st to 31st, 2020, and the total number of business or natural days worked must also be included. Usually this is shown according to the collective agreement.
Accruals section
Here you can find everything related to the economic amount we receive in exchange for our work, also known as gross salary. Accruals are the income received by the employee and they're divided into wages and non-wage payments. Wages are the income that we receive strictly in exchange for the delivery of a service, aka hard cash. Non-wage payments stem from the exercise of work activity but aren't directly linked to our work itself. These cover spendings such as allowances, transportation aid, relocation aid, expenses on work tools, severance pay, etc. At this point it's advisable to take a look at your collective agreement as it includes important aspects such as the base salary, the salary tables that indicate whether an amount is being received according to the position and other aspects that influence our salary, like seniority. It's also important to note that, in case of receiving an extra payment, it should be reflected in the accruals section. In Spain there are two mandatory extra payments –one at Christmas and a second one at the issue date of the collective agreement. At the end of this section you'll find the total amount you are paid monthly before taxes –the gross salary.
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Deductions section: withholdings and social security contributions
Here's where the mess begins. In this section you'll find all the withholdings and contributions that apply to the payslip. In a nutshell: the accruals section adds up, and the deductions section subtracts. On the one hand, all residents in Spain have to pay the famous IRPF or Personal Income Tax (in Spanish: "Impuesto sobre la Renta de las Personas Físicas"), which is a progressive tax. This means that the more money you earn, the higher the percentage withheld from your payslip. This amount is affected by personal situations such as your marital status, whether or not you have any degree of disability, children or family dependents and your type of contract. Every employee will have a different income tax, calculated and applied by the company based on the employee's income forecast for each year. If this amount is too low, you'll have to pay an additional amount after handing in your tax declaration; if it's too high, the tax office will have to repay you. On the other hand, we have the contributions from the company to social security on behalf of the employee. This contribution falls on both the employee and the employer, and both must be reflected on the payslip. We pay contributions for several different topics, whereas the percentage –which depends on the legislation that applies at the time– must always be reflected on the payslip. Social security contributions are as follows:
Unemployment: 1.55% if it's an indefinite contract, or 1.60% if it's a contract for a limited part-time or full-time period.
Common contingencies: 4.70%
Vocational training: 0.10%
Overtime due to extraordinary circumstances: 2%
Other overtime: 4.70%
Additionally the employer contributes 0.20% to FOGASA, but the employee doesn't.
Other capacities such as advances, remunerations and other deductions may also appear at the end of this section.
Net salary
This is the section where you can see your net salary, aka the money that you'll receive on your account every month. This is a result of: Total Accrued minus Total Deduction.
Contribution Bases
In this section you’ll find all the contribution data from the company broken down. Its purpose is to calculate the amount you will receive for future benefits such as retirement, unemployment or in case of sick leave. Now that you have a basic overview of all the different parts of your payslip, we hope you have a better understanding of your contributions. At N26, we encourage you to be interested in all matters that have an impact on your finances and your financial wellbeing. So take your payslip, check everything step by step and calculate if the result that appears on it is correct.
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