Net vs Gross Pay: As an employee, you will receive a payslip which states an amount for gross pay and net pay. But what do these terms mean? And how much money are you actually receiving?
Gross Pay
Gross Pay refers to the total amount of money you have earned from working. This is the initial amount before any deductions have been made.
Net Pay
Net Pay refers to the amount which you will actually receive and is calculated by subtracting any deductions from the Gross Pay amount.
Some deductions include:
- Income Tax (such as PAYG tax)
- Medicare levy
- Student loan repayments (such as HELP/HECS)
Superannuation is not a deduction as it is a separate payment from your gross payment.
Calculating your Gross Pay
The following methods provide an estimate to your gross pay for a particular pay period, whether that be weekly, fortnightly or monthly. These methods are useful when your employer has NOT provided a payslip or payment summary.
Calculating Gross Pay from a Salary
To calculate your Gross Pay, you must know your annual pay which can be found in your employment contract. Then, that amount is divided by the number of times you are paid each year. For example, if your salary is $60,000 and you are paid monthly, then your Gross Pay per pay period is $5,000 ($60,000 divided by 12 payments per year= $5,000 per pay period).
Calculating Gross Pay from Wages
For an employee who is paid wages by the hour, the Gross Pay amount is calculated by multiplying the hourly rate with the number of hours they have worked. Overtime hours are included in the Gross Pay but are calculated using the overtime rate. Additionally, any other income from the employment, such as commission and tips, are added to the final Gross Pay amount.
Gross Pay Calculator Tool
Alternatively, you can use the Gross Pay Calculator from the Australian Tax Office website to estimate your Gross Pay and find out how much has been withheld for tax purposes.
Some information that you will need to provide include your:
- Residency status
- Medicare levy exemption type
- Take-home pay amount (the total amount received for that pay period)
Net Pay vs Gross Pay: Summary
Gross Pay is the total amount you have earned and Net Pay is the final amount that you will receive after deductions such as tax. When you have not received a payslip or payment summary outlining these amounts, it can be estimated yourself or by using the ATO’s calculator. However, for more precise and tailored advice on this issue, get in touch with a business lawyer here.
