{"id":17392,"date":"2023-02-03T13:01:21","date_gmt":"2023-02-03T11:01:21","guid":{"rendered":"https:\/\/clockify.me\/blog\/?p=17392"},"modified":"2026-05-19T02:00:00","modified_gmt":"2026-05-19T00:00:00","slug":"gross-pay-vs-net-pay","status":"publish","type":"post","link":"https:\/\/clockify.me\/blog\/business\/gross-pay-vs-net-pay\/","title":{"rendered":"Gross Pay vs. Net Pay \u2014 What It Is and How To Calculate It"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Gross pay and net pay refer to an employee\u2019s earnings, which is why people may confuse the two. The main difference is that gross pay includes earnings before deductions, while net pay is what remains after deductions.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Read on to learn more about gross and net pay, what they include, and how they\u2019re calculated.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1110\" height=\"555\" src=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Cover-Gross-Pay-vs-Net-Pay-1110x555.webp\" alt=\"Cover - Gross Pay vs Net Pay\" class=\"wp-image-37973\" srcset=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Cover-Gross-Pay-vs-Net-Pay-1110x555.webp 1110w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Cover-Gross-Pay-vs-Net-Pay-600x300.webp 600w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Cover-Gross-Pay-vs-Net-Pay-768x384.webp 768w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Cover-Gross-Pay-vs-Net-Pay-1536x768.webp 1536w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Cover-Gross-Pay-vs-Net-Pay-18x9.webp 18w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Cover-Gross-Pay-vs-Net-Pay.webp 1800w\" sizes=\"auto, (max-width: 1110px) 100vw, 1110px\" \/><\/figure>\n\n\n\n<ul class=\"wp-block-list key-takeaways\">\n<li>Gross pay includes the salary before any deductions.<\/li>\n\n\n\n<li>Net pay is the amount employees receive after deductions have been made.<\/li>\n\n\n\n<li>Deductions can be voluntary or involuntary.<\/li>\n\n\n\n<li>Deductions usually include tax, retirement contributions, insurance premiums, etc.<\/li>\n<\/ul>\n\n\n\n<h2 id=\"what-is-gross-pay\" class=\"wp-block-heading\">What is gross pay?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Gross pay or gross salary is the total amount an employee earns before deductions.<\/strong> So, it presents the salary you pay your employees (incl. overtime pay and bonuses), plus tax amount, and benefits.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Certified public accountant (CPA) <a href=\"https:\/\/www.linkedin.com\/in\/levonlgalstian\" target=\"_blank\" rel=\"noreferrer noopener\">Levon Galstian<\/a>, whom we spoke to, defines gross pay like this:<\/p>\n\n\n\n<div class=\"wp-block-group pro-blockquote\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-8f761849 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"449\" height=\"449\" src=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Levon-1.jpeg\" alt=\"Levon Galstian - Certified public accountant\" class=\"wp-image-17424\" srcset=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Levon-1.jpeg 449w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Levon-1-300x300.jpeg 300w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Levon-1-150x150.jpeg 150w\" sizes=\"auto, (max-width: 449px) 100vw, 449px\" \/><\/figure>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">\u201c<em>Gross pay includes salary, hourly wage, reimbursements, bonuses, commissions, and overtime pay. To calculate gross pay, any commission, reimbursement, or bonuses owed to the employee should be added to their wages.<\/em>\u201d<\/p>\n<\/blockquote>\n<\/div>\n<\/div>\n<\/div><\/div>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">Simply put, gross pay is the salary you agreed upon with your employee and includes wages, overtime, bonuses, and benefits.<\/p>\n\n\n\n<p class=\"custom-btn wp-block-paragraph\"><a href=\"https:\/\/app.clockify.me\/signup\">Track labor costs in Clockify<\/a><\/p>\n\n\n\n<h3 id=\"how-to-calculate-gross-pay\" class=\"wp-block-heading\">How to calculate gross pay<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">To <a href=\"https:\/\/clockify.me\/blog\/business\/compensation-plan\/\">create a compensation plan for your employees<\/a>, you need to determine gross pay. Calculating the gross pay is quite straightforward, as it presents the salary you agreed with your employee.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Gross pay includes an employee\u2019s:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Hourly wage or salary,<\/li>\n\n\n\n<li>Overtime,<\/li>\n\n\n\n<li>Bonuses, and<\/li>\n\n\n\n<li>Additional reimbursements for work-related expenses (think travel and uniform allowance).<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The exact steps for calculating gross pay depend on whether you\u2019re paying hourly or a fixed salary.&nbsp;<\/p>\n\n\n\n<h3 id=\"how-to-calculate-gross-wages-for-hourly-workers\" class=\"wp-block-heading\">How to calculate gross wages for hourly workers<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Here\u2019s a simple formula for calculating gross pay for hourly employees:&nbsp;<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\"><strong>Gross pay<\/strong> = Hourly rate \u00d7 Hours worked + (Overtime + Bonuses + Taxes + Retirement contributions + Health insurance)<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To simplify the calculation, you can use a <a href=\"https:\/\/clockify.me\/time-card-calculator\">time card calculator<\/a> to determine pay based on regular hours worked and overtime.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">CPA Levon Galstian gave us a step-by-step guide to calculating gross wage per hour:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Multiply<\/strong> the hourly wage by the number of regular <a href=\"https:\/\/clockify.me\/calculating-payroll-hours-worked\">hours worked<\/a> within a pay period (that\u2019s how often you pay your employees), and<\/li>\n\n\n\n<li><strong>Include<\/strong> the overtime pay rate for the extra hours (this applies to non-exempt employees).<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s take a software engineer from the United States as an example. The <a href=\"https:\/\/www.salary.com\/research\/salary\/benchmark\/software-engineer-ii-salary\" target=\"_blank\" rel=\"noreferrer noopener\">average hourly wage for a software engineer in the US<\/a> is $51. Let\u2019s also assume this employee is paid weekly \u2014 they worked 40 regular hours and 2 hours of overtime the previous week.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">We\u2019ll first calculate the regular earnings. So, multiply the regular rate ($51) by the number of regular workweek hours (40 in this case):<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\">$51 x 40 = $2,040<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For a <a href=\"https:\/\/www.dol.gov\/agencies\/whd\/fact-sheets\" target=\"_blank\" rel=\"noreferrer noopener\">non-exempt employee<\/a>, the <a href=\"https:\/\/www.dol.gov\/agencies\/whd\/overtime\" target=\"_blank\" rel=\"noreferrer noopener\">FLSA rules for overtime<\/a> apply. Thus, the hourly overtime rate will be one and a half (1.5) times the employee\u2019s regular rate:&nbsp;<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\">$51 x 1.5 = $76.5<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You can even use an <a href=\"https:\/\/clockify.me\/overtime-pay-calculators\">overtime calculator<\/a> to help you determine overtime pay accurately.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Next, since this employee worked 2 overtime hours, you have to multiply the overtime rate ($76.5) by the number of overtime hours (2 hours) to get the weekly overtime earnings:<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\">$76.5 x 2 = $153<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Once you calculate both regular and overtime earnings, the calculation will look like this:<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\">$2,040 + $153 = $2,193<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So, the gross pay for that week is $2,193.<\/p>\n\n\n\n<p class=\"custom-btn wp-block-paragraph\"><a href=\"https:\/\/app.clockify.me\/signup\">Track billable hours in Clockify<\/a><\/p>\n\n\n\n<h3 id=\"how-to-calculate-gross-earnings-for-salaried-workers\" class=\"wp-block-heading\">How to calculate gross earnings for salaried workers<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Our expert interlocutor, Levon Galstian, also provided us with a process for calculating gross earnings based on the annual salary. To get gross earnings for salaried workers, you should <em>\u201cdivide the annual salary by the <\/em><a href=\"https:\/\/clockify.me\/blog\/workforce-management\/how-many-pay-periods-in-a-year\/\"><em>number of pay periods<\/em><\/a><em> in a year.\u201d<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There are 4 common payment frequency schemes:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Weekly,<\/li>\n\n\n\n<li>Bi-weekly,<\/li>\n\n\n\n<li>Semi-monthly, and<\/li>\n\n\n\n<li>Monthly.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Out of these 4 payment schedules, <a href=\"https:\/\/www.bls.gov\/ces\/publications\/length-pay-period.htm\" target=\"_blank\" rel=\"noreferrer noopener\">45.7% of US employees are paid bi-weekly<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you pay your employees once a week, there will be 52 pay periods (53 in a leap year). So, to calculate employees\u2019 weekly earnings, divide their annual earnings by 52 (or 53).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Likewise, <a href=\"https:\/\/clockify.me\/blog\/workforce-management\/semi-monthly-vs-bi-weekly-payroll\/\">paying bi-weekly<\/a> means you\u2019ll have 26 pay periods (27 in a leap year).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Also, employees who receive a salary twice a month will have 24 pay periods, while those who are paid monthly should divide their annual earnings by 12.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Payment schedule<\/strong><\/td><td><strong>Number of pay periods per year<\/strong><\/td><\/tr><tr><td>Weekly<\/td><td>52 (or 53 for leap years)<\/td><\/tr><tr><td>Bi-weekly<\/td><td>26 (or 27 for leap years)<\/td><\/tr><tr><td>Semi-monthly<\/td><td>24<\/td><\/tr><tr><td>Monthly<\/td><td>12<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s assume your employee\u2019s annual salary is $72,000 and they\u2019re paid semi-monthly (twice a month). Their semi-monthly gross salary will be:<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\">$72,000 \/ 24 = $3,000<\/p>\n\n\n\n<h2 id=\"what-is-net-pay\" class=\"wp-block-heading\">What is net pay?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Net pay is the <\/strong><a href=\"https:\/\/finance.arizona.edu\/payroll\/employees\/paycheck-info\/gross-net\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>salary workers actually receive<\/strong><\/a><strong>.<\/strong> It\u2019s also called take-home pay and represents employees\u2019 total earnings after all deductions.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For the principal accountant of an accounting firm, <a href=\"https:\/\/www.linkedin.com\/in\/brett-willmot-06b91349\" target=\"_blank\" rel=\"noreferrer noopener\">Brett Willmot<\/a>, net pay is:<\/p>\n\n\n\n<div class=\"wp-block-group pro-blockquote\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-8f761849 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"100\" height=\"100\" src=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Brett-Willmot-1.jpeg\" alt=\"Brett Willmot - principal accountant of an accounting firm\" class=\"wp-image-17422\"\/><\/figure>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">\u201c<em>The amount of money that an employee takes home after all deductions have been made. It is the total amount of money that an employee earns after all taxes, benefits, and other deductions have been subtracted from the gross pay.<\/em>\u201d<\/p>\n<\/blockquote>\n<\/div>\n<\/div>\n<\/div><\/div>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">On a similar note, the founder of another accounting firm, <a href=\"https:\/\/www.linkedin.com\/in\/wendy-ha\" target=\"_blank\" rel=\"noreferrer noopener\">Wendy Ha<\/a>, helped us understand the importance of knowing our net pay:<\/p>\n\n\n\n<div class=\"wp-block-group pro-blockquote\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-8f761849 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"353\" height=\"353\" src=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Wendy-Ha.jpeg\" alt=\"Wendy Ha - the founder of an accounting firm\" class=\"wp-image-17412\" srcset=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Wendy-Ha.jpeg 353w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Wendy-Ha-300x300.jpeg 300w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Wendy-Ha-150x150.jpeg 150w\" sizes=\"auto, (max-width: 353px) 100vw, 353px\" \/><\/figure>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">\u201c<em>The reason why there is a net pay is that there are different types of deductions that are taken off from the paycheck and remitted to different parties (i.e., government, unions, etc.). At times, the government\/unions rather have the business owner deduct these taxes\/fees and remit to them directly, as opposed to each individual themselves.<\/em>\u201d<\/p>\n<\/blockquote>\n<\/div>\n<\/div>\n<\/div><\/div>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">\n<div class=\"banner banner-light clockify-gradient-templates\">\n    <div class=\"banner-text lg:pr-[6rem]\">\n        <span class=\"h4 text-lg translation-block mb-0\">Powerful Payroll Tracker<\/span>\n        <p class=\"translation-block mt-1 mb-3\">Clockify by CAKE.com is a time tracker that lets you track work hours across projects. You can set hourly rates so that the amount you need to pay employees is automatically calculated.<\/p>\n\n        <div class=\"banner-buttons d-flex gap-4 align-items-center translation-block justify-content-center justify-content-sm-start\">\n            <a class=\"bg-white rounded px-3 py-1 text-gray-dark\" href=\"https:\/\/app.clockify.me\/en\/signup\" target=\"_blank\">Sign up<\/a>\n\n                            <a class=\"button-2\" href=\"https:\/\/clockify.me\/payroll\" target=\"_blank\">Learn more<\/a>\n                    <\/div>\n    <\/div>\n\n    <div class=\"banner-image banner-image-middle \">\n        <picture>\n            <source srcset=\"https:\/\/clockify.me\/blog\/wp-content\/themes\/cake-blog\/theme\/images\/banners\/clockify\/templates@2x.png 2x\" alt=\"Illustration\"  media=\"(min-width: 1022px)\" \/>\n            <img decoding=\"async\" src=\"https:\/\/clockify.me\/blog\/wp-content\/themes\/cake-blog\/theme\/images\/banners\/clockify\/templates.png\"  alt=\"Illustration\" \/>\n        <\/picture>\n    <\/div>\n<\/div>\n    &nbsp;<br><\/p>\n\n\n\n<h2 id=\"how-to-calculate-net-pay\" class=\"wp-block-heading\">How to calculate net pay<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">To calculate net pay, subtract taxes and deductions from the gross pay. The formula is:&nbsp;<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\"><strong>Net pay <\/strong>= Gross pay \u2013 Taxes \u2013 Deductions<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Employees in the US may notice 2 types of deductions in their paychecks:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Mandatory deductions, and<\/li>\n\n\n\n<li>Voluntary deductions.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Mandatory (involuntary) deductions are made in <a href=\"https:\/\/www.brandeis.edu\/human-resources\/policies-forms-procedures\/payroll\/paycheck-deductions.html\" target=\"_blank\" rel=\"noreferrer noopener\">accordance with the law<\/a>. For US citizens, <a href=\"https:\/\/fam.state.gov\/FAM\/04FAM\/04FAM0540.html#M541\" target=\"_blank\" rel=\"noreferrer noopener\">involuntary deductions<\/a> include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Withholding of federal, state, and local income taxes (certain states don\u2019t impose state or\/and local income taxes),<\/li>\n\n\n\n<li>Deduction for US social security taxes, Foreign service retirement, Civil service retirement, Federal Employees\u2019 Group Basic Life Insurance (FEGLI), Federal Employees Health Benefits (FEHB), and<\/li>\n\n\n\n<li>Court-ordered garnishments and bankruptcy payments.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Garnishments represent additional deductions and vary from employee to employee. They usually include student loans, credit card loans, and unpaid child support.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On the other hand, voluntary deductions are those that employees can opt out of. For US workers, voluntary deductions include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Dental insurance,<\/li>\n\n\n\n<li>Retirement plan,<\/li>\n\n\n\n<li>Savings plan,<\/li>\n\n\n\n<li>Optional life insurance,<\/li>\n\n\n\n<li>Loan repayment,&nbsp;<\/li>\n\n\n\n<li>Long-term care program, or<\/li>\n\n\n\n<li>Other optional programs.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Some deductions are <a href=\"https:\/\/pinellas.gov\/pre-tax-payroll-deductions\/\" target=\"_blank\" rel=\"noreferrer noopener\">pre-tax<\/a>, while others are subtracted after taxes.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Pre-tax deductions apply to the full amount of the gross pay. Pre-tax deductions include certain health insurance premiums and 401(k). Simply put, a <a href=\"https:\/\/www.irs.gov\/retirement-plans\/401k-plans\" target=\"_blank\" rel=\"noreferrer noopener\">401(k)<\/a> is a savings and retirement plan that workers contribute to from their wages.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On the other hand, post-tax deductions are those taken from the amount that remains after pre-tax deductions and taxes. Post-tax deductions typically consist of disability insurance or garnishments.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"How to Manage Payroll with Clockify | Guide\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/Gs8CuD9vY84?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<h3 id=\"what-to-include-in-the-net-pay-calculation\" class=\"wp-block-heading\">What to include in the net pay calculation<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Calculating net pay can look different based on various factors, including:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Tax regulations in your state (state and local income taxes),&nbsp;<\/li>\n\n\n\n<li>Employee\u2019s <a href=\"https:\/\/apps.irs.gov\/app\/understandingTaxes\/teacher\/hows_mod05.jsp\" target=\"_blank\" rel=\"noreferrer noopener\">filing status<\/a> (single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child),&nbsp;<\/li>\n\n\n\n<li>Voluntary payments the employee signed up for (e.g., retirement contributions), and other factors.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">In general, there are a few initial steps in the net pay calculation:&nbsp;<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Subtract pre-tax deductions<\/strong> from the gross pay first (non-taxable items such as retirement plans, health insurance, etc),<\/li>\n\n\n\n<li><strong>Subtract federal income taxes<\/strong> (federal withholding \u2014 depends on the information you provide on Form W\u20134 and FICA withholding \u2014 Social Security taxes 6.2% of the gross wages and Medicare taxes 1.45% of the gross wages),&nbsp;<\/li>\n\n\n\n<li><strong>Subtract state income taxes<\/strong> (different in each state \u2014 some states don\u2019t even impose state income taxes \u2014 and depend on the individual\u2019s income and filing status), and<\/li>\n\n\n\n<li><strong>Subtract local income taxes<\/strong> (not applicable to all states).&nbsp;<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">Then, you\u2019ll need to subtract post-tax deductions from the total amount to get the final net pay.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To clarify further, tax manager <a href=\"https:\/\/ae.linkedin.com\/in\/varsha-s-aa2229148\" target=\"_blank\" rel=\"noreferrer noopener\">Varsha Subramanian<\/a> provides 3 employee examples and a table to illustrate the process for calculating net pay. In her example, paycheck deductions include 401(k), health insurance, and federal and state income taxes.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Particulars<\/strong><\/td><td><strong>Gross pay<\/strong><\/td><td><strong>401(k) deductions&nbsp;&nbsp;<\/strong><\/td><td><strong>Health insurance deductions&nbsp;<\/strong><\/td><td><strong>Federal income tax<\/strong><\/td><td><strong>State income tax&nbsp;<\/strong><\/td><td><strong>Take-home (net) pay<\/strong><\/td><\/tr><tr><td>Employee 1<\/td><td>$600<\/td><td>$100<\/td><td>$50<\/td><td>$90<\/td><td>$30<\/td><td>$330<\/td><\/tr><tr><td>Employee 2<\/td><td>$800<\/td><td>$150<\/td><td>$80<\/td><td>$120<\/td><td>$40<\/td><td>$410<\/td><\/tr><tr><td>Employee 3<\/td><td>$1,000<\/td><td>$200<\/td><td>$180<\/td><td>$180<\/td><td>$60<\/td><td>$380<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 id=\"gross-vs-net-pay-key-differences\" class=\"wp-block-heading\">Gross vs. net pay: Key differences<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Both gross and net pay determine an employee\u2019s salary. The main difference between these 2 terms is that net pay is a worker\u2019s take-home pay, while gross salary is the amount an employee earns before deductions.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Gross pay<\/strong><\/td><td><strong>Net pay<\/strong><\/td><\/tr><tr><td>Gross pay is the entire amount an employee earns.<\/td><td>Net pay is the amount an employee receives after deductions.<\/td><\/tr><tr><td>Gross pay includes base salary, overtime pay, bonuses, insurance premiums, and retirement contributions.<\/td><td>Net pay includes base salary, overtime pay, and bonuses.<\/td><\/tr><tr><td>The gross pay amount is typically used when negotiating pay with an employee.<\/td><td>The net amount is the disposable income the employee uses for personal spending and savings.<\/td><\/tr><tr><td>The employer deducts tax, health insurance, retirement contributions, and similar benefits before paying the employee.<\/td><td>The employee sees the net amount in their bank account.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><br>Principal accountant Brett Willmot highlights how important it is to know the difference:<\/p>\n\n\n\n<div class=\"wp-block-group pro-blockquote\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-8f761849 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"100\" height=\"100\" src=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2023\/02\/Brett-Willmot-1.jpeg\" alt=\"Brett Willmot - principal accountant of an accounting firm\" class=\"wp-image-17422\"\/><\/figure>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">\u201c<em>The difference between gross and net pay can affect budgeting and financial planning. Gross pay is often used to determine an employee\u2019s base salary or wages, while net pay is used to determine the actual amount of money that an employee will receive in their paycheck.<\/em>\u201d<\/p>\n<\/blockquote>\n<\/div>\n<\/div>\n<\/div><\/div>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">Likewise, CPA Levon Galstian reminds us that \u201c<em>employers are responsible for deducting the necessary expenses from an employee\u2019s paycheck and making payments to the appropriate accounts before issuing the check or depositing the net pay into the employee\u2019s bank account.<\/em>\u201d<\/p>\n\n\n\n<h2 id=\"gross-net-pay-vs-gross-net-income\" class=\"wp-block-heading\">Gross\/net pay vs. gross\/net income<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The terms gross and net pay slightly differ from gross and net income: Gross income includes all earnings before deductions. Unlike gross pay, gross income doesn\u2019t only refer to income from employment, but also:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interest,<\/li>\n\n\n\n<li>Dividents,&nbsp;<\/li>\n\n\n\n<li>Capital gains, or<\/li>\n\n\n\n<li>Rental income.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Gross income determines borrowing capacity (how big a loan you can take from a financial institution), as that\u2019s the amount that lenders look at. Moreover, it determines a person\u2019s <a href=\"https:\/\/www.forbes.com\/advisor\/taxes\/taxes-federal-income-tax-bracket\/\" target=\"_blank\" rel=\"noreferrer noopener\">federal income tax bracket<\/a>. It\u2019s the first step of filing tax returns.<\/p>\n\n\n\n<p class=\"has-background wp-block-paragraph\" style=\"background-color:#e5f6fe\">Net income is gross income minus deductions and taxes.<\/p>\n\n\n\n<h2 id=\"track-payroll-and-labor-costs-with-clockify-by-cake-com\" class=\"wp-block-heading\">Track payroll and labor costs with Clockify by CAKE.com<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Calculating pay accurately for hourly workers can become a nightmare without a proper tool. Simple solution? Use Clockify by CAKE.com as a <a href=\"https:\/\/clockify.me\/payroll-hours-tracker\">payroll hours tracker<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Clockify lets you <strong>track billable hours and expenses<\/strong>. Once you set the cost rates, Clockify calculates the total amount you need to pay your employees.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"593\" height=\"335\" src=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Labor-costs-in-Clockify.webp\" alt=\"Labor costs in Clockify\" class=\"wp-image-37972\" srcset=\"https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Labor-costs-in-Clockify.webp 593w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Labor-costs-in-Clockify-531x300.webp 531w, https:\/\/clockify.me\/blog\/wp-content\/uploads\/2026\/05\/Labor-costs-in-Clockify-18x10.webp 18w\" sizes=\"auto, (max-width: 593px) 100vw, 593px\" \/><figcaption class=\"wp-element-caption\">Labor costs in Clockify<\/figcaption><\/figure>\n<\/div>\n\n\n<p class=\"wp-block-paragraph\">You can even <strong>hide tracked time and expenses<\/strong> from team members. This means they\u2019ll only see their own time and expenses \u2014 not those of other employees. This feature allows you to keep payroll information private.<\/p>\n\n\n\n<p class=\"custom-btn wp-block-paragraph\"><a href=\"https:\/\/app.clockify.me\/signup\">Try Clockify by CAKE.com FREE<\/a><\/p>\n\n\n\n<h2 id=\"faqs-about-net-pay-vs-gross-pay\" class=\"wp-block-heading\">FAQs about net pay vs. gross pay<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">To learn even more about the differences between net pay and gross pay, check out these frequently asked questions.<\/p>\n\n\n\n<h3 id=\"is-tax-taken-from-gross-or-net\" class=\"wp-block-heading\">Is tax taken from gross or net?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Tax is taken from gross pay.<\/p>\n\n\n\n<h3 id=\"is-it-better-to-be-paid-gross-or-net\" class=\"wp-block-heading\">Is it better to be paid gross or net?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Employees always receive net pay in their bank accounts. Gross pay is the amount before deductions, so the gross amount never reaches the employee. The exception is self-employed workers who are responsible for paying their own taxes.<\/p>\n\n\n\n<h3 id=\"should-i-save-20-of-my-gross-or-net-pay\" class=\"wp-block-heading\">Should I save 20% of my gross or net pay?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">If you want to save money, experts suggest calculating savings from the gross amount \u2014 with 20% a month being a commonly recommended target.&nbsp;<\/p>\n\n\n\n<h3 id=\"why-is-my-gross-pay-less-than-my-net-pay\" class=\"wp-block-heading\">Why is my gross pay less than my net pay?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Your gross pay shouldn\u2019t be less than your net pay \u2014 but the other way around. That\u2019s because net pay is the amount you get after mandatory and voluntary deductions, including taxes, health insurance, and retirement contributions.<\/p>\n\n\n\n<h3 id=\"what-deductions-can-reduce-my-taxes\" class=\"wp-block-heading\">What deductions can reduce my taxes?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">According to the IRS, you can lower your taxes by <a href=\"https:\/\/www.irs.gov\/credits-and-deductions-for-individuals\" target=\"_blank\" rel=\"noreferrer noopener\">claiming credits and deductions<\/a> when you file your tax return.<\/p>\n\n\n\n<h3 id=\"what-income-isnt-taxed\" class=\"wp-block-heading\">What income isn\u2019t taxed?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Examples of nontaxable income include gifts, life insurance proceeds, child support, and workers\u2019 compensation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\n<div class=\"banner banner-dark clockify-gradient-bundle\">\n    <div class=\"banner-text lg:pr-[6rem]\">\n        <span class=\"h4 text-lg translation-block mb-0\">CAKE.com Bundle<\/span>\n        <p class=\"translation-block mt-1 mb-3\">If you need more than a time and labor cost tracker, try the CAKE.com Bundle. Apart from Clockify time tracker, this offer gives you Pumble for team communication and Plaky for project management. You get all 3 tools 53% off.<\/p>\n\n        <div class=\"banner-buttons d-flex gap-4 align-items-center translation-block justify-content-center justify-content-sm-start\">\n            <a class=\"bg-white rounded px-3 py-1 text-gray-dark\" href=\"https:\/\/cake.com\/try\" target=\"_blank\">Get Bundle<\/a>\n\n                            <a class=\"button-2\" href=\"https:\/\/cake.com\/bundle\" target=\"_blank\">Learn more<\/a>\n                    <\/div>\n    <\/div>\n\n    <div class=\"banner-image banner-image-bottom \">\n        <picture>\n            <source srcset=\"https:\/\/clockify.me\/blog\/wp-content\/themes\/cake-blog\/theme\/images\/banners\/clockify\/bundle@2x.png 2x\" alt=\"Illustration\"  media=\"(min-width: 1022px)\" \/>\n            <img decoding=\"async\" src=\"https:\/\/clockify.me\/blog\/wp-content\/themes\/cake-blog\/theme\/images\/banners\/clockify\/bundle.png\"  alt=\"Illustration\" \/>\n        <\/picture>\n    <\/div>\n<\/div>\n    <br><\/p>\n","protected":false},"excerpt":{"rendered":"<p> Learn the main differences between gross pay vs. net pay, and how to calculate each.<\/p>\n","protected":false},"author":35,"featured_media":37974,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-17392","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"acf":[],"_links":{"self":[{"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/posts\/17392","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/comments?post=17392"}],"version-history":[{"count":86,"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/posts\/17392\/revisions"}],"predecessor-version":[{"id":38957,"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/posts\/17392\/revisions\/38957"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/media\/37974"}],"wp:attachment":[{"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/media?parent=17392"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/categories?post=17392"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clockify.me\/blog\/wp-json\/wp\/v2\/tags?post=17392"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}