When you enter the workforce, you may hear about “gross pay” and “net pay” But what is the difference?
Gross pay is the total amount of money an employee earns before any deductions are made. Components include:
- Hourly wage or salary (base pay)
- Overtime pay
- Bonuses
- Commissions
- Other forms of compensation (tips & allowances)
Net pay is the amount an employee receives in their paycheck after all deductions have been subtracted from their gross pay. Deductions can include:
- Federal, state & local taxes (income tax, Social Security, Medicare)
- Retirement plan contributions (401(k), pension plans)
- Health insurance premiums
- Other benefits (such as life insurance, disability, etc.)
- Other withholdings (wage garnishments, union dues)