Glossary of Human Resources Management and Employee Benefit Terms
Gross vs. net income is a comparison between the amount an employer pays an employee (gross) and the amount the employee takes home after deductions (net). Most employees see this difference in their pay stubs each pay period through figures and calculations that help reassure them that they’re receiving full compensation for their work.
Each paystub should display a breakdown of gross income by source, including regular income, bonus pay, and reimbursements. Hourly employees generally have a view of their hours worked and their rate as well.
Once the gross income is established, the next step in calculating net income is to process all mandatory and voluntary deductions for each employee. These deductions include the following:
Federal and state income tax withholdings
FICA tax withholdings (these deductions fund Social Security and Medicare)
Medical, dental, and vision benefit deductions
Contributions to retirement plans
Wage garnishment payments
Deductions for charitable organizations or savings
Each paystub should display the total amount set aside for deductions with a breakdown of how much goes to each deduction.
After the gross income and deduction totals have been established, subtracting the total deductions from the gross income amount shows the employee’s net income. Helping employees know where to find these three figures on their pay stubs (gross income, total deductions, and net income) helps them double-check their total pay.