Net pay

What is net pay?

Net pay is the amount of money an employee receives after all deductions have been taken from their gross wages. These deductions typically include income tax, social insurance contributions, healthcare contributions, retirement contributions, and any other voluntary or statutory withholdings. Also known as “take-home pay,” net pay is the final amount transferred to the employee after payroll processing.

It’s calculated as follows:

Gross pay - deductions = net pay

For example, if an employee earns $5,000 in gross pay for a given month and has $1,200 in deductions, their net pay would be $3,800. The difference between gross and net pay reflects both mandatory deductions (such as payroll taxes) and voluntary deductions (such as 401(k) or health insurance contributions).

Why does this matter for employers?

Employers are responsible for accurately calculating both gross and net pay, applying all relevant deductions based on national and local laws, as well as employee-specific elections. Incorrect net pay calculations can lead to employee dissatisfaction, payroll corrections, or compliance issues with tax authorities.

Understanding net pay is also important when budgeting for compensation, forecasting labour costs, and communicating clearly with employees — especially in international contexts where tax and deduction structures can vary significantly.

How can Remote help?

Remote’s payroll platform automatically calculates and distributes net pay for employees, factoring in local tax rules, statutory deductions, and benefits selections. This ensures employees are paid accurately and on time, while employers remain fully compliant with local laws. Learn more.