Guide
What a tax wedge is, and what your payslip hides
Your payslip shows what came out of your salary. It does not show the 15% your employer paid on top, which is money spent to employ you that you will never see.
"Tax wedge" is the OECD's term for the difference between what an employer pays to employ someone and what that person actually takes home. It is a better measure of a tax burden than an income tax rate, because it counts everything — and because employers, quite reasonably, think about the total.
In the UK the hidden half is employer National Insurance: 15% of everything you earn above £5,000, with no upper limit, paid by your employer on top of your salary. It is not deducted from your pay, so it is not on your payslip, so most people do not know the number. At a £40,000 salary it is £5,250 a year.
A £40,000 job, in full
- Employer spends
- £45,250
- Salary £40,000 plus £5,250 employer NI
- You receive
- £32,319.60
- 80.8% of your salary
- The wedge
- 28.6%
- Share of the total that reaches neither of you
How the wedge grows
| Salary | Employer NI | Employer cost | Take-home | Wedge | Payslip-only rate |
|---|---|---|---|---|---|
| £20,000 | £2,250 | £22,250 | £17,919.60 | 19.5% | 10.4% |
| £30,000 | £3,750 | £33,750 | £25,119.60 | 25.6% | 16.3% |
| £40,000 | £5,250 | £45,250 | £32,319.60 | 28.6% | 19.2% |
| £50,000 | £6,750 | £56,750 | £39,519.60 | 30.4% | 21.0% |
| £70,000 | £9,750 | £79,750 | £51,157.40 | 35.9% | 26.9% |
| £100,000 | £14,250 | £114,250 | £68,557.40 | 40% | 31.4% |
| £125,140 | £18,021 | £143,161 | £78,110.60 | 45.4% | 37.6% |
| £150,000 | £21,750 | £171,750 | £91,286.40 | 46.8% | 39.1% |
The last two columns are the same tax, measured against different denominators. The payslip rate divides by your salary; the wedge divides by what the job costs. The gap between them is the employer contribution you never see.
Notice that the two columns diverge as pay rises, and that the wedge is roughly ten points higher throughout. That gap is not a rounding difference or a technicality — it is about a third of the total tax on the job, sitting outside the document that is supposed to tell you what you were taxed.
Who actually pays employer NI?
Formally, the employer. In practice most economists think the cost is largely passed to workers over time through lower wages than would otherwise have been offered — an employer budgets for the total cost of a hire, not the headline salary. That is a claim about incidence over time rather than something visible in any one payslip, and this site does not need you to accept it: the arithmetic above is true either way. What is not in dispute is that the money is spent on employing you, and that the usual way of describing UK tax leaves it out.
Why it matters when you negotiate
Because your employer is deciding about the total. Asking for £2,000 more costs them £2,300, and you receive £1,440 of it. Asking for the same £2,000 as a pension contribution through salary sacrifice costs them £2,000 — less than the pay rise — and puts the whole £2,000 into your pension. Both sides do better, which is why sacrifice schemes exist.
Where the UK sits, and why the comparison is slippery
The OECD publishes tax wedges for member countries every year, and the UK usually appears in the lower half — which is regularly quoted as evidence that British employment is lightly taxed. It is worth knowing what that comparison does and does not capture before leaning on it.
The published figure is computed for a specific household: typically a single person with no children on the average wage of the country concerned. That is a defensible convention and it is not your situation. A UK worker at £110,000 faces a wedge far above the published national figure, because the personal allowance taper is doing something the average-wage case never encounters. A part-time worker below the National Insurance primary threshold faces one far below it. A single national number is an average over a curve that is not remotely flat.
The second difficulty is that countries fund different things through the wedge. Where health care, pensions or unemployment insurance are paid for by employer contributions, they appear in the wedge; where they are funded from general taxation or bought privately, they do not. Two countries with the same wedge can leave a worker with very different amounts of risk to carry themselves. The measure is a good way to compare the shape of a tax system with itself over time, and a poor way to settle an argument about which country taxes work most heavily.
Why the wedge is the honest measure of a job
Every widely quoted tax figure measures something narrower than the thing people actually care about. The headline rate describes one band. The effective rate describes an average over your own pay and stops at the payslip. Even "total tax paid" leaves out the largest single employment tax in the system, because employer National Insurance is levied on the employer and never appears on any document the employee sees.
The wedge closes that gap by asking a question with only one sensible answer: of everything spent to employ this person, what share reaches them? It is the measure the OECD uses to compare countries for exactly that reason — it cannot be gamed by moving a tax from one side of the payslip to the other, because both sides are inside the measurement.
Checking this against your own payslip
Everything above is arithmetic on published parameters, which means it can be checked rather than trusted — and the check is worth doing, because the most common reason a figure here differs from your payslip is not an error on either side. Four things account for nearly all of it.
A tax code that is not the standard one changes your allowance, and codes carrying an adjustment from an earlier year are common. A benefit in kind — a company car, private medical cover — is taxed through the code and does not appear as pay. A workplace pension deducted before tax reduces taxable pay, so your gross and your taxable figure are not the same number. And National Insurance is charged per pay period rather than annually, which is why a month containing a bonus takes proportionally more than the annual figures here imply, and why the year-end total still reconciles.
If none of those explains the gap, it may be an error on this side, and that is worth an email to corrections@taxwedge.com. Corrections are published with a date at /changes/ whether or not anyone else would have noticed.
Questions people actually ask
What is employer National Insurance?
A tax paid by employers on employees' earnings: 15% of everything above the £5,000 secondary threshold, with no upper limit, for the 2026/27 year. It does not come out of your pay and does not appear on your payslip, but it is part of what your employment costs.
What is the UK tax wedge?
Income tax plus employee National Insurance plus employer National Insurance, divided by total employment cost. On this site's figures it runs from 19.5% at £20,000 to 46.8% at £150,000.
Does my employer pay NI on my pension contribution?
Not on a salary sacrifice contribution — that is the point of the arrangement. Sacrificed pay is not earnings, so neither employer nor employee National Insurance is due on it. On a personal contribution taken from net pay, the salary is unchanged, so the employer NI is unchanged too.