Gross Pay vs Net Pay: Definitions and Examples

Whether you earn a salary or hourly wages, you may notice two different numbers on your payslip. These two numbers are commonly referred to as ‘net pay’ and ‘gross pay’. If you're interested in understanding your pay as it relates to others in your field, visit Indeed's Salary Calculator for a free, personalised pay range based on your location, industry and experience.

What is gross pay?

Gross pay is the total amount of money an employee receives before taxes and deductions are taken out. For example, when an employer pays you an annual salary of $50,000 per year, this means you have earned $50,000 in gross pay.

In this article, we’ll provide more details about what gross income is, what it means for your monthly and annual income and how to properly calculate your income when looking at gross salary.

Gross pay vs. net pay

Your gross pay will often appear as the highest number you see on your pay slip. It is a reflection of the amount your employer pays you based on your agreed upon salary or hourly wage. For example, if your employer agreed to pay you $20.00 per hour and you work for 30 hours during a pay period, your gross pay will be $600.00.

Net pay is the amount of money that will finally be available to you. Using our last example, if you earned $600.00 in gross pay, your net pay will be the amount that ends up in your bank account after taxes and other fees have been taken out.

In most cases, your net pay appears in larger font on your paycheck or pay statement and is often bolded to appear darker so that you can easily distinguish it from your gross pay.

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Deductions from gross pay

Your gross income is the total amount of money you receive annually from your monthly gross pay. Your gross annual income and gross monthly income will always be larger than your net income.

The reason your gross pay is always higher than your net pay is due to some mandatory and voluntary deductions from your employer and potentially due to choices you have made about savings or benefits.

Required deductions can include but are not limited to:

• Income tax

• Medicare levy

On your pay slip, you may also see deductions for your health insurance, superannuation or other benefits if your employer offers these.

Related: What’s Taxation on Employees? (With Definitions of Taxes)

How to calculate gross income

To calculate your gross income, refer to your most recent pay slip. How you calculate gross income will vary depending on whether you receive a salary or hourly wage.

Calculating gross income for salaried employees

The salary included on the contract you and your employer signed when you started will be your official gross pay. You may also be able to calculate gross income based on your regular pay statements. For example, if you receive $5,000.00 per month in gross pay from your employer, you can do a simple calculation ($5,000.00 x 12 months) to get your gross income: $60,000.00.

However, there’s a chance you could earn other income from your employer, including from bonuses. If you’ve received bonuses as well as your salary, you will need to include the full amount you received before taxes in bonuses when you calculate your gross salary amount.

For example, if your employer agrees to pay you $60,000.00 per year without bonuses, that will be your gross income. However, if you receive a $5,000.00 bonus this year, your gross pay will be $65,000.00.

Calculating gross income for wage employees

If you earn hourly wages and you aren’t sure of how many hours you’ll work annually, it may be easiest to calculate your gross income at the end of the year. Once you receive your last pay slip, you will be able to locate the entire gross earnings you made during that year.

However, if you do receive regular and guaranteed hours from your employer, you can calculate your weekly, monthly or yearly gross income rather easily. Simply multiply the number of hours you receive each week by the total amount you earn in an hour.

For example, if you earn $18.00 per hour with a guaranteed 35 hours of work per week, you will have gross weekly wages of $630.00, gross monthly income of about $2,520.00 and gross annual pay of about $32,760.00 per year.

If your employer does not provide paid time off, remember that your gross pay will decline if you take any days off. If you receive a raise at any point in the year, adjust your calculation to account for the increase in hourly pay.