When it comes to payroll, there are a lot of ways to talk about the wages your employees get paid. Two important terms to understand are net pay and gross pay. Although they sound similar, they are really very different.
- Gross pay is the amount of money your employees receive before any taxes and deductions are taken out. For example, when you tell an employee, “I’ll pay you $50,000 a year,” it means you will pay them $50,000 in gross wages.
- Net pay is the amount of money your employees take home after all deductions have been taken out. This is the money they have in their pocket on payday.