What is Gross Pay? The Difference Between Gross Pay & Net Pay.
As mentioned earlier, gross pay is made before salaries are deducted. Employers use this figure to negotiate compensation with employees, ie $ 60,000 a year or $ 25 an hour. Total income is also applied to the corporate and government tax brokers.
Gross Pay vs Net Pay – Let’s Understand
Gross pay is usually the total amount of money allocated to candidates by an organization that seeks to attract them. It is the income that an employee earns before taxes are deducted.
Although the net income is the employee who ends up getting it in hand as negotiated at the time of hiring (subject to post upgrades) after deducting the total amount.
Considering the payslip slip, Gross income is always listed above, and the net income is finalized below, giving you a direct difference between them. It’s always lower than gross pay, and that’s how you can separate these.
Why Is It Important To Understand Gross Pay vs Net Pay?
Employees may wonder as the total salary is always lower than the total salary.
As an HR, it is always difficult to calculate the salary for every job. Also, if you offer a salary without deducting any taxes, then you may be paying under the table, which is a legal offense.
Read Also: What is Annual Income?
How To Calculate Gross Pay Per Hour?
The amount of salary is a reduction in a person’s basic income, continuous expense benefits, compensation, and an annual bonus amount based on his or her terms of employment.
Total Salary = Basic Salary + Grants (DA + HRA + LTA + others) + Bonus + Rewards
This figure varies according to the job description of employees, such as hourly and paid employees. Both hourly and paid employees can work full-time, part-time, and on a job-sharing basis.
If you have hourly employees, they should be paid according to the hourly pro-rata. Remuneration for these employees can be weekly or twice a week as per the company.
Total employee salary per hour = employee hourly rate * Hours worked
For example, the average working hours is 80 ₹, and the hours worked by them are 8 hours a day. The daily wage for an employee is 80 * 8, which is equivalent to 640 ₹ per day.
The remuneration of leading employees is calculated based on the year and not the hour. Therefore, it can be weekly, twice weekly, or monthly.
The total salary of paid employee = Annual Salary / Number of paid hours
Suppose an employee’s annual salary is 3,60,000 ₹ and the organization’s pay period is 12 months. The total employee income will be 3,60,000 / 12, which is 30,000 ₹ per month.
How To Calculate Employee Net Pay?
First of all, when it comes to the amount of money being paid, information about the amount of income is important. The calculation of income includes the appropriate tax burden of the employee. These tax debts can change from year to year and are important to keep track of. The formula for calculating total income is included below.
Total Income = Total Income – Legal Deductions (EPF, ESIC, Gratuity) – Income Tax (TDS, PT)
For example, see the following table. Provides a clear understanding of total payment and balance payments.
MONEY (monthly) LEGAL MONEY (monthly) STATUTORY ADDITION (monthly)
Basic 18,000 Employee Provident Fund (Employee) 2520 EPF (Employer) 2520
Allowance 12500 Professional Tax 200 Gratuity 1014
ESIC (Employee) 157.5 ESIC (Employer) 682.5
Tax Dedicated 1700 Official Bonus 1749
Performance Bonus 2500
Total 34,000 Total 4577.5 Total 6465.5
Total Salary = 34,000 per month
Income = 29,422.5 per month
According to the formulas
Income = 18,000 + 12,500 + 2500 + 500 = 34,000 Dollars/month
Company costs = 34,000 + 6465.5 = 40,465.5 Dollars/month
Net income = 34,000 – 4,577.5 = 29,422.5 Dollars/month
Where Can You Record the Total Salary and Employee Income?
Although salary calculations are important, maintenance of that income also needs to be done. The company must record at least 3 years’ compensation and part-time details of all its employees for accounting purposes. It is essential to the objectives of the auditing auditors.
Payslips are detailed receipts that the employer is authorized to provide to employees each time a payroll is transferred. These are also called Paystubs, Paychecks, etc., and include only one employee’s details. As discussed above, both the total amount and the salary amount are printed on the payslip to ensure the difference.
It calculates every part of the income such as tax cuts, additional benefits, basic benefits, total annual income to date, etc. These payslips now come in digital and physical forms, no matter what the company and business choices.
Unlike payslips, the pay register provides information on all employees’ salaries. Includes the same items as provided in the payslip. The difference is that it is not given to an employee and is useful for company purposes.
The pay register is very important in auditing. This type of log can be done manually or digitally. The software for automated companies these days includes accounting and JV payroll options.