Gross pay vs net pay
Understanding the difference between gross pay and net pay is essential for both employers processing payroll and employees reviewing their payslips. The two figures represent different stages in the pay calculation process.
Gross pay
- Total earnings before deductions
- Includes all pay components
- Used for tax calculations
- Shown on payslips and payment summaries
Net pay
- Take-home pay after deductions
- PAYG tax already withheld
- Actual bank deposit amount
- What employees receive
When discussing salaries or wages, most figures quoted are gross pay. Net pay varies depending on individual tax circumstances, salary sacrifice arrangements, and other deductions.
Components of gross pay
Gross pay is made up of several components, all of which must be correctly calculated and recorded on payslips to meet Fair Work requirements.
What makes up gross pay
Note that expense reimbursements and employer superannuation contributions are not included in gross pay—they are separate from employee earnings.
How gross pay is calculated
Calculating gross pay involves summing all earnings components for the pay period. For hourly employees, this requires accurate time tracking; for salaried employees, it's the fixed amount plus any additional payments.
- Calculate base pay: Hourly rate × ordinary hours worked, or salary portion for the period
- Add overtime: Hours beyond ordinary × overtime rate (usually 150-200%)
- Add penalty rates: Apply weekend, public holiday, and other loadings
- Add allowances: Any applicable allowances for the period
- Add bonuses: Performance payments, commissions, or other incentives
- Total gross pay: Sum of all components
Australian payslip requirements
Under Fair Work regulations, payslips must clearly show the gross pay amount and how it was calculated. This includes itemising ordinary hours, overtime hours, penalty rate hours, and any allowances or loadings. Payslips must be provided within one working day of payment.
What's deducted from gross pay
Mandatory deductions
- PAYG tax: Income tax withheld at source
- HELP/HECS: Student loan repayments (if applicable)
- Child support: Court-ordered deductions
Voluntary deductions
- Salary sacrifice: Pre-tax super contributions
- Health insurance: Private health premiums
- Union fees: Membership contributions
Employers can only make deductions that are authorised by law, by a court order, or by the employee in writing. Deductions must not leave employees worse off than their award entitlements.
Common mistakes with gross pay
Confusing gross and net in contracts
Employment contracts should always specify gross pay. Quoting net pay leads to confusion about actual earnings and tax obligations.
Missing payslip itemisation
Payslips must show each component of gross pay separately. A single lump sum without breakdown doesn't meet Fair Work requirements.
Including super in gross pay
Superannuation is paid on top of gross pay, not as part of it. A "$60,000 package including super" is not the same as "$60,000 gross pay."
Incorrect PAYG calculations
Using the wrong gross pay figure for tax calculations leads to over or under-withholding of PAYG tax, causing issues at tax time.
Key takeaways
Gross pay is the total amount an employee earns before any deductions. It includes base pay, overtime, penalty rates, allowances, bonuses, and leave payments. Understanding gross pay is essential for accurate payroll processing, tax compliance, and clear communication about remuneration.
Employers must calculate gross pay correctly and itemise it on payslips as required by Fair Work. Using integrated payroll software helps ensure accurate gross pay calculations and compliant payslip generation for every pay period.
