Gross vs net income

What gross and net income mean, how they differ for employees and businesses, and how to convert one into the other

Gross vs net income

What do gross and net mean?

Gross is an amount before taxes, contributions and other deductions. Net is what remains after all deductions. Applied to income, gross income is everything a person or company earns, and net income is what is actually left to spend or reinvest.

The terms are also used for weight: gross weight includes the packaging, net weight is the product alone. In both cases, net is gross minus what is taken away.

Gross vs net income: the difference

	Gross	Net
What it is	the amount before deductions	the amount after deductions
For an employee	gross wages	net pay (take-home pay)
For a business	revenue from all sales	net profit after costs and taxes
Where you see it	in the employment contract, budgets, revenue reports	on the payslip, in the bank account, in financial statements

How to convert gross to net

The basic formula is net = gross − taxes and deductions. For employees, deductions usually include income tax, social security contributions and sometimes pension or other voluntary deductions. In the UK, for example, a monthly gross salary of £3,000 leaves about £2,453 after income tax and National Insurance, before any pension contributions. The full calculation for an employee's pay is covered under gross wages.

Gross and net income for a business

For companies the chain is longer. Gross income starts from revenue; subtracting the cost of goods sold gives gross profit, subtracting operating expenses gives operating profit, and subtracting tax gives net profit. HR follows these numbers because payroll is budgeted in gross terms and often compared with revenue, for example through revenue per employee.

Gross and net in job offers

Most countries quote salaries gross in job ads and contracts, while candidates think in take-home pay. To avoid misunderstandings, say clearly in the job ad, the offer letter and salary negotiations whether a figure is gross or net, and remember that net pay depends on each person's tax situation.

In PeopleForce Core HR, base salary and salary history are stored in each employee profile, so HR and finance work from the same up-to-date figure for payroll.