What is the difference between gross pay and net pay?
Gross pay is what you earn before deductions. Net pay is what you take home after tax and National Insurance. The difference, with a worked example.
Gross pay and net pay are two of the most common terms on a payslip, and the difference between them matters to every employer and employee in the UK. In short, gross pay is what you earn before deductions, and net pay is what you take home after them. This guide explains both clearly, with a worked example.
Gross pay: what you earn before deductions
Gross pay is the total an employee earns in a pay period before anything is taken off. It is the headline figure, and it is made up of more than just basic salary or wages. Gross pay can include:
- Basic salary or hourly wages
- Overtime
- Bonuses and commission
- Holiday pay
- Statutory payments such as sick, maternity or paternity pay
If someone is on a salary of £30,000 a year paid monthly, their gross pay each month is £2,500, before any deductions.
Net pay: what you actually take home
Net pay, usually called take-home pay, is what is left after all the deductions have come out of gross pay. It is the amount that actually reaches the employee’s bank account. The most common deductions are:
- Income tax (PAYE), worked out using the employee’s tax code
- National Insurance contributions
- Pension contributions, including workplace pension auto-enrolment
- Student loan repayments, if applicable
- Other deductions such as an attachment of earnings order or a salary sacrifice arrangement
Gross to net: a worked example
Here is a simplified example of how gross pay becomes net pay for a monthly-paid employee. The figures are illustrative and rounded to show the principle, not exact current rates.
| Line | Amount |
|---|---|
| Gross pay | £2,500.00 |
| Less: Income tax (PAYE) | − £290.00 |
| Less: National Insurance | − £140.00 |
| Less: Pension (5%) | − £125.00 |
| Net (take-home) pay | £1,945.00 |
The employee earned £2,500 gross but takes home £1,945. The £555 difference is the deductions, most of which the employer must pay across to HMRC and the pension provider on the employee’s behalf.
Why the difference matters
For employees, understanding gross and net pay explains why the salary you agreed is not the amount that lands in your account, and helps you check your payslip is right. For employers, it is a legal responsibility: you must calculate each deduction correctly, show it clearly on an itemised payslip, and pay the right amounts to HMRC and the pension provider on time. Getting a tax code or a National Insurance calculation wrong affects your employee’s take-home pay and can create problems with HMRC.
Let us handle the calculations
Working out gross-to-net correctly, every pay run, for every employee, is exactly what a payroll bureau does. We calculate the deductions, produce clear payslips, file with HMRC and make sure your team is paid the right amount on time. Learn more about our outsourced payroll service, or get a no-obligation quote.