Net Pay

HR Glossary for HR Professionals

Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.

Net Pay

What is a net pay?

Net pay is the amount paid to an employee after deductions have been taken out. Also called “take-home pay,” this is the amount an employee will receive on payday. 

Net pay vs gross pay

Gross pay is the amount of money an employee is paid before taxes and deductions are taken out. Gross pay can include: 

  • Salary
  • Hourly wages
  • Overtime pay
  • Tips 
  • Bonuses
  • Commissions
  • PTO

Net pay is the amount paid to an employee after those deductions have been made. For example, if an employee’s salary is $50,000 per year, $50,000 is the employee’s gross wages.

Net pay formula

Calculating net pay is not a straightforward calculation. To calculate net pay, pre-tax deductions, post-tax deductions, and payroll taxes are subtracted from an employee’s gross pay. Both deductions and payroll tax rates will vary by employee due to their benefit elections, W-4 elections, and their location. There are two types of deductions – mandatory and voluntary deductions. 

Mandatory deductions are required by law and include: 

  • Federal payroll tax
  • State payroll tax (where applicable)
  • Local payroll tax (where applicable)
  • Wage garnishments

Voluntary deductions are benefits an employer offers that an employee can choose to elect such as: 

  • Health insurance
  • Dental insurance
  • Vision insurance
  • Retirement savings
  • Life insurance
  • Disability insurance
  • HSAs
  • FSAs

Deductions can either be pre-tax or post-tax. Pre-tax deductions are not subject to tax withholdings and post-tax deductions are subject to tax withholdings. This means that pre-tax deductions lower taxable wages while increasing net pay. 

Net pay is the amount paid to an employee after those deductions have been made. For example, if an employee’s salary is $50,000 per year, $50,000 is the employee’s gross wages.

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