What is take home pay?

What is take-home pay?

Take-home pay (also known as net pay or net income) is the amount of money an employee is left with after deductions from their gross pay, such as taxes and other withholdings. It represents the part of their salary they can “take home.”

The rate of take-home pay can vary hugely depending on where your employee lives and how much they earn.

How to calculate take-home pay

In most cases, it’s relatively simple to calculate an employee’s take-home pay. It is the amount remaining after the following deductions have been taken:

Income taxes. The amount of tax withheld depends upon multiple factors, such as the employee’s income level, applicable tax credits, and the type of tax (i.e. federal, state, provincial, municipal, etc.).

Social security. In many countries, social security contributions are withheld. These can be dependent upon salary level, or set at a fixed rate.

Retirement/pension contributions. If an employee participates in a retirement savings plan, contributions may be deducted from their gross pay.

Health insurance. Many employers offer health insurance benefits and deduct the premiums from the employee's salary. The exact amount depends on the type of coverage and the cost-sharing arrangement.

Other deductions. These can include any other withheld contributions, such as flexible spending accounts, union dues, or any other voluntary deductions.

Note that there can sometimes be discrepancies in take-home pay for employees who earn the same gross salary. This can be due to any number of additional factors, such as:

• Commissions and bonuses

• Number of dependents

• Preferred tax arrangements (such as on the W-4 form in the US)

• Court-ordered withholdings

• Additional income from other sources of employment