Gross Pay vs. Net Pay: Definitions and Examples

By Indeed Editorial Team

Updated November 9, 2022 | Published August 16, 2018

Updated November 9, 2022

Published August 16, 2018

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

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Whether you earn an annual salary or are paid hourly wages, you might notice “gross pay” and “net pay” on your paycheck. Understanding what is included in gross pay vs net pay will help you understand your total take-home pay.

In this article, we explain what gross pay is, how it differs from net pay and how to calculate gross pay for hourly and salaried employees.

What is gross pay?

Gross pay is the total amount of money an employee receives before taxes and deductions are taken out. For example, when an employer pays you an annual salary of $40,000 per year, this means you have earned $40,000 in gross pay.

Your gross pay will often appear as the highest number you see on your pay statement. It is a reflection of the total amount your employer pays you based on your agreed-upon salary or hourly wage. For example, if your employer agreed to pay you $15 per hour and you work for 30 hours during a pay period, your gross pay will be $450.

What is net pay?

Net pay is the final amount of money that you will receive after all taxes and deductions have been subtracted. Net pay is the amount that’s actually deposited into your bank account or the value of your paycheck.

In most cases, your net pay appears in a larger font on your paycheck or pay statement and is often bolded to appear darker so that you can easily distinguish it from your gross pay.

What is the difference between gross pay and net pay?

Essentially, gross pay is the amount of pay before any deductions have been taken out of your wages. Net pay is the amount after all deductions have been taken and this is the actual amount of your paycheck.

Related: Guide: How To Ask for a Raise

Typical deductions from gross pay

Your gross income is the total amount of money you receive annually. It is the sum of your monthly gross pay. Your gross annual income will always be larger than your net income because it does not include any deductions. Some deductions are mandatory and others are voluntary choices you have made about savings or benefits.

Required deductions can include but are not limited to:

  • Federal, state and local income or payroll taxes

  • Social security and Medicare taxes (FICA)

  • Health insurance premiums

  • Retirement funds, such as 401k

  • Wage garnishments

  • Form W4 elections (completed by the employee upon hire)

Your employer may make additional voluntary deductions from your paycheck for other reasons. These can include but are not limited to pension plans, equipment and uniforms necessary for your job and union dues. These are voluntary in the sense that they are not federally mandated, but you may not have the option to opt out of them under your employment contract.

On your payslip, you may also see deductions for your health plan, 401k, health savings account, flexible savings account or other benefits if your employer offers these.

Deductions related to savings mean that the money is still yours but is being placed in an account you may only be able to access under certain circumstances or by paying a tax penalty. The amount of these deductions is typically something you personally determine when you are making benefit selections. Your company’s HR team may be able to answer any questions you have regarding these choices.

If you're interested in comparing your pay to average salaries in your field, visit Indeed's Salary Calculator for a free, personalized pay range based on your location, industry and experience.

Related: Salary vs. Hourly Pay: What are the Differences?

How to calculate gross income

To calculate your gross income, refer to your most recent pay statement. How you calculate gross income will vary depending on whether you receive a salary or hourly wage.

Calculating gross income for salaried employees

The salary included in your employment contract will be your official gross pay. You may also be able to calculate gross income based on your regular pay statements. For example, if you receive $5,000 per month in gross pay from your employer, you can do a simple calculation ($5,000 x 12 months) to get your gross income: $60,000.

However, there’s a chance you could earn other income from your employer, including bonuses. If you’ve received bonuses in addition to your salary, you will need to include the full amount you received before taxes in bonuses when you calculate your gross salary amount.

It’s important to add the gross bonus amount to your gross salary because bonuses are often taxed at a different rate than regular income.

For example, if your employer agrees to pay you $60,000 per year without bonuses, that will be your gross income. However, if you receive a $5,000 bonus this year, it will be taxed at a 22% flat rate, while your regular salary will have either a lower or higher tax rate, depending on how you file your taxes. So your gross pay will be $65,000, including bonuses.

Related: How To Negotiate Salary

Calculating gross income for wage employees

If you earn hourly wages and you aren’t sure how many hours you’ll work annually, it may be easiest to calculate your gross income at the end of the year. Once you receive your last pay statement, you will be able to locate the entire gross earnings you made during that year.

However, if you do receive regular and guaranteed hours from your employer, you can calculate your weekly, monthly or yearly gross income rather easily. Simply multiply the number of hours you receive each week by the total amount you earn in an hour.

For example, if you earn $18 per hour with a guaranteed 35 hours of work per week, you will have gross weekly wages of $630, gross monthly income of $2,520 and gross annual pay of $32,760 per year.

If your employer does not provide paid time off, remember that your gross pay will decline if you take any days off. If you receive a raise at any point in the year, adjust your calculation to account for the increase in hourly pay.

Related: Asking For A Raise: A How-To Guide To Earn What You Deserve

In this video, we explain how to ask for a raise, how to calculate your ask, measure your contributions and help you earn what you deserve.

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