Analysing and interpreting factors affecting income, including calculating gross pay from a wage and overtime, and working out net pay after deductions such as income tax, National Insurance and pension contributions.

What this dot point is asking

The SQA wants you to analyse the factors affecting someone's income: calculate gross pay from an hourly rate and overtime, then work out net pay by subtracting deductions such as income tax, National Insurance and pension contributions, reading the figures from a payslip.

Gross pay and overtime

Gross pay is what someone earns before anything is taken off. For an hourly worker it is the number of hours worked multiplied by the hourly rate, plus any overtime.

A salaried worker is paid a fixed annual amount instead. To find monthly pay, divide the annual salary by $12$; to find weekly pay, divide by $52$. Some workers are paid weekly, others monthly, so converting between the two is a common step: a $\pounds 480$ weekly wage is roughly $480 \times 52 \div 12 = \pounds 2080$ a month.

Bonuses and commission are additions to basic pay, so they increase the gross. Commission is often a percentage of sales, for example $5\%$ of $\pounds 4000$ of sales is $\pounds 200$ added to the basic pay.

Deductions and net pay

Deductions are amounts taken off gross pay before it reaches the worker. The three that appear most often at National 5 are income tax, National Insurance and pension contributions.

Income tax and National Insurance are sometimes given as a percentage of pay rather than a fixed amount, in which case you find that percentage of the gross first, then subtract.

Reading a payslip

A payslip lists gross pay, each deduction, and net pay. The skill the SQA tests is interpreting these figures: identifying which entries are additions (basic, overtime, bonus) and which are deductions (tax, National Insurance, pension), then combining them correctly. A payslip may also show year-to-date totals, which add up everything earned and deducted so far in the tax year; a question might ask you to read or check one of these running totals against the monthly figures.

Examples in context

Income questions model real working life. A part-time worker checks whether their overtime was paid correctly; a graduate compares a salary offer by working out monthly take-home pay; a payslip is read to confirm the right tax and pension were deducted. These all rest on separating additions from deductions and calculating gross and net pay accurately, the core skill here.

Try this

Q1. A worker earns $\pounds 11$ per hour for $40$ hours. Find the basic weekly pay. [2 marks]

• Cue. $40 \times \pounds 11 = \pounds 440$.

Q2. Overtime is paid at double time. Find the overtime rate for a basic rate of $\pounds 9$. [1 mark]

• Cue. $2 \times \pounds 9 = \pounds 18$ per hour.

Q3. Gross pay is $\pounds 1500$ with deductions of $\pounds 180$, $\pounds 90$ and $\pounds 75$. Find net pay. [2 marks]

• Cue. $1500 - (180 + 90 + 75) = \pounds 1155$.