Gross vs net pay

Gross income is the total amount of money earned by an employee before any deductions or taxes are taken out. This includes wages, salaries, bonuses, and other earnings.

What is net pay?

Net pay, also known as take-home pay, is the amount of money the employee is left with after all deductions have been withheld from their gross income. Depending on where the employee is based, these deductions can include taxes, social insurance contributions, health insurance premiums, retirement contributions, and other voluntary deductions.

What is the difference between gross and net pay?

The primary difference between gross and net pay lies in the deductions:

• Gross pay: Total earnings before any deductions.
• Net pay: Earnings after all deductions have been taken out.

Gross pay is the starting point, while net pay is the actual amount the employee takes home.

How to find gross income

To calculate gross income for a salaried employee, multiply the annual salary by the number of pay periods. For example, if the annual salary is $60,000 and there are 12 monthly pay periods, the gross income per month is $5,000.

For an hourly employee, multiply the hourly wage by the number of hours worked in a pay period. For example, if the hourly rate is $20 and the employee works 160 hours in a month, the gross income for that month is $3,200.

Finally, add any bonuses, commissions, or other forms of monetary compensation to the gross income.