After being emailed your payslip, you often see the two different terms “gross payment” and “net payment” alongside it. What is the difference between gross payment vs net payment? People may at times confuse the two, and not understand exactly how the pay structure works. It is important that you understand what these words mean, to gain knowledge on how much you take home from what you earn.
Gross payment is the total amount of money that an employer receives, before any form of taxes or deductions are taken out. This includes your base salary or hourly wage, as well as any benefits or allowances that you receive. At times, this could also include any form of special allowances, travel allowance, housing allowances, or even medical insurance. Your gross payment can also be called your “base pay”, as this is the salary offered when a job is advertised, excluding any short or long-term incentives or benefits.
On your payslip, this is usually the higher figure listed at the top. Travelling downwards, your payslip includes all sorts of various deductions such as taxes, retirement contributions, incentives, insurance, and other several employee-specific deductions. Your net payment is then listed below, which can be considered your “take-home pay” after necessary deductions.
Deductions from your gross pay can vary based on two factors which include: your country of origin and the company you work for. The most common form of deductions that you might come across on your payslip include:
Gross salary is listed when a job offer is received, or could be identified as an annual salary based on different sources such as wages, commissions, tips, bonuses, or any other form of compensation. It does not take into account any form of monthly deduction when listed, as it can be identified as a pre-negotiated amount of money on the contract of an employee. This, differentiates from gross payment, as an employee’s gross payment could be in any form, such as tips, hourly wages, overtime, vacation pay, piece-rate pay, commissions, bonuses, sick pay, and even holiday pay.
Net payment (also known as take-home pay), is an employee’s earnings after all deductions have been done from the gross payment. The deductions listed above are the figures that fall below your gross pay figure on the top of your payslip, and above the net pay figure at the very bottom. The net payment outlines the final amount that you will take home.
There are also various reasons regarding why employers need to know their employees’ net payment, for reasons such as employee relations, accounting practices, payroll taxes, and legal defence.
To put into example, if an employee has a $1900 gross pay per fortnight, and has to pay $380 in taxes, the net payment or “take home” pay of that employee comes down to $1520.
As an employee, knowing what your gross payment vs net payment is, in order to be clear and concise on how much you actually earn. Your net payment is usually what you end up taking home, and is usually listed down at the bottom most area of our pay slip, or the final figure after all deductions have been made by your employer. Your gross pay, on the other hand, should be located at the top of your payslip, or the first figure you come across. Knowing the difference between is essential, in order to ensure you don't get deducted from your salary unreasonably.
If you require any assistance with your payslip including discrepancies between your gross payment vs net payments, our business specialists can help! You can book a free 30 minute consultation here, or you can contact our sister company Legal Kitz who specialise in employment related matters.
