Net pay simplified: What is it & how to calculate?

You will normally find the term ‘net pay’ on a payslip. This Business Kitz blog post will consider all you need to know about net pay, including what it is exactly, and how to calculate it.

What is net pay?

In order to understand what net pay means, we must first define gross pay. 

Gross pay is the total amount of money an employee receives before taxes and deductions are taken out and is a reflection of the amount your employer pays you based on your hourly wage or salary. Therefore, net pay is the amount of money available to you after taxes and other deductions.

How do I calculate my net pay?

Net pay is calculated simply by subtracting any deductions from your gross pay.

*Gross Pay – Deductions = Net Pay

For example, if an employee has a gross income of $900 a week, and has $150 deducted for taxes and benefits, their net pay is $750. 

*$900 – $150 = $750

How do I calculate gross pay?

If you are unsure of your gross pay you can get an estimate based on your net pay by using the ATO’s Gross Pay Calculator. To use this calculator you will need:

• Your take home pay amount for the pay period (can be weekly, fortnightly or monthly);
• Your residency status; and
• Your instalment rate as notified by the ATO.

What must be included on a payslip?

According to Fair Work Australia, below is a list of what must be included on a payslip:

• Employer’s and employee’s name;
• Employer’s ABN;
• Pay period;
• Pate of payment;
• Gross and net pay;
• If the employee is paid an hourly rate:
  • the ordinary hourly rate,
  • the number of hours worked at that rate, and
  • the total dollar amount of pay at that rate;
• Any loadings (including casual loading), allowances, bonuses, incentive-based payments, penalty rates or other paid entitlements that can be separated out from an employee’s ordinary hourly rate. For example, a note could be included on a pay slip that the hourly rate incorporates the relevant casual loading;
• The pay rate that applied on the last day of employment;
• Any deductions from the employee’s pay, including:
  • the amount and details of each deduction,
  • the name, or name and number of the fund / account the deduction was paid into,
• Any superannuation contributions paid for the employee’s benefit, including:
  • the amount of contributions made during the pay period (or the amount of contributions that need to be made), and
  • the name, or the name and number, of the superannuation fund the contributions were made to.

Legal advice

If you have received a payslip or payment summary that does not outline your net pay or gross pay amounts, it can be estimated yourself or by using the ATO’s Gross Pay Calculator. For more precise advice on this issue, you should seek legal advice. Our sister company Legal Kitz can assist in ensuring that your concerns are addressed and can provide you with advice that is tailored to your situation. You can book a free 30-minute consultation with our experienced and highly qualified team via our website now.