New research from payroll provider PayFit has revealed confusion among younger workers in the UK about how their pay is calculated, including statutory financial contributions such as pensions and National Insurance.
The survey, which included over 2,000 working adults, found that 59 percent of 18-24-year-olds struggle to understand adjustments to their pay – a financial literacy gap that leaves many unable to manage their finances effectively.
While only 9 percent of 18-24-year-olds feel confident explaining salary sacrifice schemes, 24 percent of older workers reported understanding these benefits. Similarly, just 16 percent of younger employees understand personal pension contributions, compared to 56 percent of those aged over 55. When asked about National Insurance contributions, only 27 percent of young people said they could explain them, compared to 70 percent of older workers.
The findings also reveal confusion around holiday pay, with 44 percent of 18-24-year-olds confident in explaining how their holiday pay is calculated, compared to 55 percent of older workers.
The Costs of Financial Misunderstanding
The confusion around pay and deductions has a direct impact on employers. According to the survey, 41 percent of 18-24-year-olds have sought explanations from their employers about changes to their pay – costing businesses both time and money.
Firmin Zocchetto, CEO and Co-Founder of PayFit, warns that failing to address this knowledge gap could harm businesses.
“Employers that are slow to educate their staff about pay are setting themselves up for a fall,” Zocchetto said. “When employees are uncertain about why their pay changes, it not only costs businesses time and money but also breeds mistrust, erodes motivation, and weakens loyalty.”
Without a clear understanding of pay and deductions, employees may struggle to plan their finances effectively, risking overspending or under-saving. Step Change, the UK’s largest debt advice service, found in its latest report that there is a steady increase in full-time employees seeking debt help, rising from 38 percent in 2021 to 44 percent by the end of 2023.
Financial Education as an Employer Responsibility
With financial literacy not widely taught in schools, employers are increasingly seen as responsible for educating their workforce. Despite 86 percent of young workers saying they do not fully trust their employer, 42 percent indicated they would feel more positively towards their employer if they were provided with resources to increase take-home pay and save money.
Zocchetto added, “Here’s the good news: by being transparent on how pay is calculated and providing their team with financial education, employers can turn this around, creating a more informed and committed workforce.”
The survey found that many employees would be more motivated to contribute to pensions and savings if they had access to financial planning tools (28%), reminders about pension contributions (25%), and insights on tax savings (22%). Employers who invest in financial education could not only improve employee satisfaction but also foster a more engaged and productive workforce.
