Gross Pay and Net Pay

There is often confusion when it comes to terms like Gross and Net Pay. In part, this is because the average person does not deal with these terms on a regular basis.

Gross pay is the total money that your employer pays you in wages. If you are paid a salary, e.g., $2,500 a month, that is your gross salary or gross pay. Another way to calculate it is if you earn $30,000 a year in salary and are paid every 2 weeks, divide the annual salary by 26 to determine your gross salary for any pay period.

Net pay is the amount of money you receive from your employer after all deductions have been made. In other words, the amount you see on your check. If you are on a salary, your net pay is the amount of the gross pay ($1,153.85 using the example above plus any overtime pay, bonuses, and reimbursements) minus all taxes and deductions.