Functional Skills Level 2 — Money and Finance

Wages and Salaries

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Salary vs Hourly Rate — Converting Pay Periods

A salary is a fixed annual (yearly) amount paid in equal monthly or weekly instalments. An hourly rate means pay depends on hours worked. You must be able to convert between annual, monthly and weekly pay.

Annual salary ÷ 12 = Monthly pay  |  Annual salary ÷ 52 = Weekly pay
PAYSLIP — April 2026 Employee: J. Smith Pay period: Monthly GROSS PAY £2,333.33 Less: Income Tax − £257.17 Less: National Insurance − £102.87 Less: Pension (5%) − £116.67 NET PAY (take home) £1,856.62 Converting Annual Salary: £28,000 ANNUAL £28,000 ÷ 12 MONTHLY £2,333.33 ÷ 52* WEEKLY £538.46 *Always use annual ÷ 52 for weekly — do not chain monthly ÷ 4

Example 1 — Annual salary to monthly and weekly pay

Amir earns an annual salary of £32,400. Calculate his monthly and weekly pay.

Step 1
Monthly pay = £32,400 ÷ 12 = £2,700 per month
Step 2
Weekly pay = £32,400 ÷ 52 = £623.08 per week (to the nearest penny)

Example 2 — Hourly rate to annual salary

Sara works 37 hours per week at £11.50 per hour. Calculate her annual salary.

Step 1
Weekly pay = 37 × £11.50 = £425.50
Step 2
Annual salary = £425.50 × 52 = £22,126 per year
Key fact: There are 52 weeks and 12 months in a year. Always convert from the annual figure directly — do not chain (weekly → monthly) as rounding errors build up.
✓ Quick Check 1 — Salary calculations and pay periods
Question 1 of 10
Overtime — Time and a Half, Double Time

When employees work overtime (beyond their contracted hours), they are usually paid at a higher rate. The most common overtime rates are time and a half (×1.5) and double time (×2).

Time and a half rate = basic rate × 1.5  |  Double time rate = basic rate × 2
Overtime Rates — Basic: £12.00 per hour BASIC TIME × 1.0 £12.00/hr TIME AND A HALF × 1.5 £18.00/hr DOUBLE TIME × 2.0 £24.00/hr Normal hours Most overtime Bank holidays Weekly Pay Breakdown — Basic Rate £12/hr 35 hrs × £12 = £420 (basic) 4 hrs × £18 = £72 (OT) TOTAL GROSS PAY £492 £420 + £72 = £492 total gross pay

Example 3 — Basic pay plus overtime at time and a half

Leon's basic rate is £12 per hour. He works 35 basic hours and 4 hours overtime at time and a half. Calculate his total gross pay.

Step 1
Basic pay = 35 × £12 = £420
Step 2
Overtime rate = £12 × 1.5 = £18 per hour
Step 3
Overtime pay = 4 × £18 = £72
Step 4
Total gross pay = £420 + £72 = £492

Example 4 — Double time on a bank holiday

Amara earns £9.50 per hour. She works 6 hours on a bank holiday at double time. How much does she earn?

Step 1
Double time rate = £9.50 × 2 = £19 per hour
Step 2
Pay = 6 × £19 = £114
Common mistake: "Time and a half" means the rate is multiplied by 1.5 — NOT that you simply add half the hours. A rate of £10/hr at time and a half = £10 × 1.5 = £15/hr.
✓ Quick Check 2 — Overtime calculations
Question 1 of 10
Deductions and Net Pay

Gross pay is total pay before any deductions. Net pay (take-home pay) is what you actually receive after deductions such as income tax, National Insurance (NI) and pension contributions are removed.

Net pay = Gross pay − Income Tax − National Insurance − Pension (and any other deductions)
From Gross Pay to Net Pay GROSS PAY £2,500 DEDUCTIONS Tax: £290.50 NI: £116.20 | Pension: £125 NET PAY £1,968.30 £2,500 − £290.50 − £116.20 − £125.00 = £1,968.30 Worked Example — Monthly Payslip (£30,000/yr) Annual salary: £30,000 Gross monthly pay (£30,000 ÷ 12): £2,500.00 Less: Income Tax − £290.50 Less: National Insurance − £116.20 Less: Pension (5% of gross) − £125.00 NET PAY (take-home) £1,968.30 Total deductions: £290.50 + £116.20 + £125.00 = £531.70  |  Net: £2,500 − £531.70 = £1,968.30

Example 5 — Calculate net pay from a payslip

Nina earns £28,800 per year. Each month her deductions are: Income Tax £188, National Insurance £107, Pension £120. Calculate her monthly net pay.

Step 1
Gross monthly pay = £28,800 ÷ 12 = £2,400
Step 2
Total deductions = £188 + £107 + £120 = £415
Step 3
Net pay = £2,400 − £415 = £1,985 per month

Example 6 — Finding gross pay when net pay is known

Marco's monthly net pay is £1,700. His deductions total £350. What is his gross monthly pay and annual salary?

Step 1
Gross monthly pay = net pay + deductions = £1,700 + £350 = £2,050
Step 2
Annual salary = £2,050 × 12 = £24,600 per year
Key terms: Gross pay = pay before any deductions. Net pay = pay after all deductions. Income Tax and National Insurance are compulsory deductions paid to HMRC. Pension contributions are often also deducted.
✓ Quick Check 3 — Deductions and net pay
Question 1 of 10

Practice: Wages and Salaries Calculations

Work out each answer and type it in (enter as a plain number, e.g. 2400 or 467.50).

#QuestionAnswerResult
1Annual salary £24,000 → monthly pay
2Annual salary £39,000 → weekly pay
3Basic rate £12/hr → time and a half rate
435 hrs at £11/hr + 5 hrs at time and a half → total pay
5Gross pay £2,100, deductions £390 → net pay
6Annual salary £30,000 → monthly pay
7Annual salary £26,000 → weekly pay
8Basic rate £10/hr → double time rate
940 hrs at £9/hr + 3 hrs at double time → total pay
10Gross pay £1,800, deductions £310 → net pay

⚠ Things to Watch Out For

  • Annual ÷ 12 vs ÷ 52: Annual salary ÷ 12 = monthly pay. Annual ÷ 52 = weekly pay. These are different — don't use 12 to find weekly pay.
  • Overtime rate — multiplying hours by wrong amount: Time and a half = normal rate × 1.5. Double time = normal rate × 2. Multiply the RATE, not the total hours worked.
  • Gross vs net pay: Gross = total before deductions. Net = take-home pay after tax and NI. Questions may ask for either — read carefully.
  • Adding overtime hours to basic hours before multiplying: Basic: 35 hrs × £12 = £420. Overtime: 5 hrs × £18 = £90. Add AFTER calculating each separately: £420 + £90 = £510.
  • Not including all deductions: Net pay = Gross − Income Tax − National Insurance − (Pension if applicable). Missing any deduction gives a wrong net pay.
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