Net pay, or take-home pay, is the money an employee actually gets after taxes and other deductions are taken out of their gross pay. These deductions usually include:
- Federal, state, and local taxes
- Social Security and Medicare
- Retirement contributions
- Health insurance premiums
- Other voluntary deductions
It’s the amount that lands in their bank account or paycheck—the money they can spend or save. Gross pay, on the other hand, is the total earnings before anything is deducted.
What’s the difference between gross and net pay?
Gross pay is an employee’s total earnings before deductions. It includes their base salary or wages plus any bonuses, commissions, or overtime.
Net pay is what’s left after deductions. It’s the actual amount an employee gets on payday.
How do you calculate net pay?
It’s a simple formula:
Net pay = Gross income – Deductions
This gives you the final amount an employee takes home. Net pay can change from paycheck to paycheck based on tax rates, benefits, and other deductions.
What is “balance of net pay”?
If an employee has just one direct deposit account, their entire paycheck goes there. But if they have multiple accounts set up, the last one in the list gets the “balance of net pay.”
That means any fixed deposits go into designated accounts first, and whatever’s left over goes into the “balance of net pay” account.