Gross pay is the total amount of pay received before any deductions. This will be the advertised salary, such as £20,000 a year.
Net pay is the amount of pay after deductions for tax and pensions. Net pay can also be referred to as the ‘take-home pay’ it is the amount of money the worker has to spend.
It is related to the concept of disposable income – income after tax and deductions.
Deductions from pay
- Income tax – the basic rate of income tax is 20%. The higher rate is 40%.
- National Insurance – a form of income tax which is used to contribute towards state pension and social security payments.
- Pension contributions. The government has encouraged firms to set up private pension schemes.