Your paycheck always shows two amounts. One above and one below. The latter is paid into your account monthly and is always a bit less than the amount above the line. Your contract probably also states the “high” amount. The difference between gross and net salary is substantial. What about this exactly?
What is gross pay?
The salary amount you see in your contract is also called the gross salary. You may also have learned the following mnemonic in the past: gross= tax. So from your gross pay comes taxes. This leaves less salary in the end.
Everyone who works must pay taxes, and as an employee, this is taken care of for you by your employer. The amount remaining is your take-home pay. This is what you get paid into your account each month.
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From gross pay to net pay
There are an awful lot of tools on the Internet where you can convert your gross pay to your net pay. These are just not always correct. This is because your take-home pay also depends on any allowances. Supplements are added to your gross pay and only then is the calculation to net pay made.
Your employer also deducts payroll taxes from your gross pay. In turn, how much tax you pay depends on how much you earn per year. So a gross-net calculation can really only be made by your employer itself.
Automatic premiums
With calculating surcharges and taxes, we are not quite there yet. In fact, to know your final net pay, you must also take into account a number of premiums. You pay these premiums to receive benefits, for example, if you become disabled.
Some well-known examples of premiums are: General Old Age Security Act (AOW), pension premium, unemployment insurance premium and the General Survivor’s Act (ANW). These premiums are deducted by your employer and then your take-home pay remains.
So to calculate the difference between gross and net salary, you have to take into account allowances, taxes and contributions. Doubting whether your take-home pay is correct? If so, check with your employer.
