Net pay

From CEOpedia | Management online

Net pay (otherwise: net income or take home pay) is employee's gross pay with subtracted deductions. Basically, net pay is how much money any working and being paid person receives after paying all their expenses to employer and state (for example income taxes, health insurance coverage or retirement contributions). Every employee can check his gross pay and see, what has been deducted from it, resulting in net pay. All information's are included in employee earnings reports.

Comparing gross income and net income

The disparity between net and gross income is for many a great importance, and thankfully can be counted with only a single set of data that has information about both types of pay, the availability of taxes's informations, and when other materials on social transfers are accessible. This makes it possible to compare income before tax and before transfer, to income after tax and after transfer. The discrepancy between gross and net income starts being difficult to compare, when we match gross files with net ones. This problem exists in country-comparative analyses and in trend analyses. It was proven, that country-comparative researches, that base on diverse earning concepts over many lands can be "seriously misleading"[1].

Net pay in comparison with labour costs

A big part of total labour costs consists of tax wedge, thus creating a disparity between gross pay and net pay. Tax wedge is the difference amid costs of labour and net pay, as a part in full labour costs, and it can be determined either as a piece of net wage or as a piece of labour costs. The research of the labour market confirms, that the changes which cut down labour costs almost for sure helped employers in the time of crisis, made an impact on employment, and proceeded to increase net wage. As reported by a World Bank study, labour taxes have rather greater impact on labour costs, than on net wages[2].

Connections between net income and net wealth

Wealth, similar to pay can be divided into gross wealth (all household assets, besides common and occupational pension wealth) and also net wealth (like in case or net pay, it is gross wealth without all outstanding liabilities of a household)[3].


  1. Atkinson A.B., Brandolini A. (2001)
  2. Trpeski P., Tashevska B. (2012)
  3. Leitner S. (2016)

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Author: Bartłomiej Bargiel