Understanding the difference between gross and net pay is fundamental for any employer — but it’s more than just a payroll technicality. It’s about building trust with employees, staying compliant with local laws, and ensuring the accuracy of financial forecasting.
In this guide, we’ll break down the gross vs net pay distinction in plain terms, explain how each figure is calculated, and explore some key considerations — wherever you’re planning to hire.
What is gross pay?
Gross pay refers to the total earnings your employee receives before any deductions are taken out. It includes:
- Base salary or hourly wage
- Bonuses
- Overtime pay
- Commissions
- Stipends and allowances (e.g., for housing or transport)
- Other taxable income provided by the employer
In simple terms, it’s the starting point: the full amount your employee earns before taxes and deductions.
What is net pay?
Net pay is the amount the employee actually receives in their bank account after deductions are applied (as a result, it’s sometimes called “take home pay”). These deductions can be mandatory (such as income tax or social security contributions), or voluntary (such as pension contributions or health insurance).
In simple terms, net pay is the take-home pay; the amount the employee can spend.
Which deductions affect net pay?
Understanding what affects net pay is essential for transparency. Deductions vary by country and employment type, but typically fall into these categories:
Statutory (mandatory) deductions:
- Income tax
- Social insurance
- National health contributions (such as Medicare)
- Unemployment insurance
- State and/or local taxes
Voluntary deductions:
- Pension or retirement contributions
- Private health or dental insurance
- Union dues
- Charity donations
- Stock options or ESPPs
Gross vs net: Why does the difference matter?
There are several reasons why it’s important to pay attention to gross vs net, including:
Hiring and compensation planning. Potential candidates may negotiate based on their net pay expectations, especially in regions with high tax burdens. As a result, you must present your offers transparently and understand how gross compensation translates into local net outcomes.
Employee trust and satisfaction. For existing employees, payroll errors (or a mismatch between expected and received pay) can erode employee trust quickly. Providing clear payslips that show gross and net pay — with line-item breakdowns — helps build confidence.
See the report: What is the true impact of payroll errors?
Payroll compliance. In many countries, you're legally obligated to calculate and report both gross and net pay correctly. Errors may lead to fines, audits, or penalties.
Budgeting and forecasting. For HR teams managing compensation budgets across countries, understanding gross vs net pay is crucial for headcount planning, cost projections, and internal equity.
Gross vs net pay in practice: An example
Let’s say you’re hiring a software engineer in Germany with a gross annual salary of €70,000.
Here’s a simplified breakdown:
Gross monthly salary: €5,833
Deductions:
- Income tax: €1,050
- Social security: €750
- Health insurance: €450
Net pay: ~€3,583
That’s a 38% reduction from gross to net — something many employers and candidates overlook in early conversations.
Contrast this with a similar role in the UAE, where there’s no income tax. A €70,000 salary could mean a net pay close to the full gross amount.
This shows why gross vs net pay comparisons are essential when managing compensation globally. Here’s how the concept can vary across regions:
Gross vs net pay in different countries
|
Country |
Income tax |
Social insurance |
Typical net-to-gross ratio |
|
United States |
Yes |
Yes |
70–80% |
|
Germany |
Yes |
Yes |
55–65% |
|
Brazil |
Yes |
Yes |
60–70% |
|
United Kingdom |
Yes |
Yes |
70–85% |
|
UAE |
No |
Minimal |
95–99% |
This is why if you’re hiring (or planning to hire) in different countries, it’s highly recommended to work with a payroll partner that is automated and has local, in-house expertise.
Other things to consider
In terms of gross and net pay, here are a few other things to take into account:
Be transparent in your job offers. When discussing offers with potential employees, clarify whether your salary figures are gross or net — especially when hiring internationally, where cultural norms may differ.
Provide clear payslips. Include breakdowns of your employee’s gross pay, deductions, and final net pay. This reduces confusion and builds trust.
Align your compensation planning with the net realities. Again, if you’re hiring (or planning to hire) abroad, benchmark your total compensation packages across regions using net pay equivalents to ensure fairness.
Educate employees on how their pay is calculated. Offer internal resources or short guides to help your team members understand their deductions, especially in high-tax jurisdictions.
Should you advertise salaries in gross or net?
Gross is standard, especially for compliance. But consider showing net examples (or calculators) for international roles.
Can you estimate net pay?
It can be difficult to estimate the exact net pay for every individual, as they may have voluntary deductions or garnishments that need to be taken into account.
However, you can get an accurate breakdown of statutory deductions in each country using Remote’s free employee cost calculator tool.
How Remote can help
As well as our cost calculator tool, Remote simplifies gross vs net calculations by automating your payroll — wherever your employees are based.
We calculate and deduct the correct amounts, ensuring you are fully compliant with all local payroll taxes at every level, saving you time, resources, and countless compliance headaches.
To learn more, and to see how else we can simplify and improve your payroll, speak to one of our friendly experts today.