Gross Pay vs. Net Pay: What's the Difference?

Gross pay vs. net pay is the difference between what you earn and what you actually take home. Gross is the bigger number on the offer letter; net is what lands in the bank after deductions. Knowing what happens in between explains why a paycheck is smaller than the salary suggests. This guide breaks it down with a clear example.

What is gross pay?

Gross pay is total earnings before any deductions. For an hourly worker, it's hours worked × rate (plus overtime). For a salaried employee, it's the annual salary divided across pay periods. It's the "headline" number — the figure in a job offer or a wage rate — before anything comes out.

What is net pay?

Net pay — also called take-home pay — is what remains after all deductions are subtracted from gross. It's the amount actually deposited or written on the check. Net is always lower than gross.

What gets deducted in between

The gap between gross and net is the deductions, which typically include:

• Taxes — federal, state, and local income tax withholding.
• Payroll taxes — Social Security and Medicare (FICA) in the US.
• Benefits — health insurance premiums, retirement contributions like a 401(k).
• Other — wage garnishments, union dues, or voluntary deductions.

Some deductions are pre-tax (lowering taxable income), others post-tax, which affects the final math.

A paycheck example

Say an employee's gross pay for a period is $2,000:

• Federal and state tax withholding: −$300
• Social Security and Medicare: −$153
• Health insurance: −$120
• 401(k) contribution: −$100
• Net pay: $1,327

The exact deductions depend on the person's tax situation, benefits, and location — this is illustrative, not a tax calculation.

How to calculate each

• Gross pay (hourly): (regular hours × rate) + (overtime hours × overtime rate).
• Gross pay (salary): annual salary ÷ number of pay periods.
• Net pay: gross pay − all deductions.

Accurate gross pay starts with accurate hours — which is where time tracking comes in.

Get gross pay right from accurate hours

Net pay depends on gross, and gross depends on the hours you record. Timesheet Maker tracks hours and overtime precisely and exports payroll-ready totals, so gross pay is correct before deductions are ever applied — no miscounted hours throwing off the whole paycheck.

Frequently asked questions

What is the difference between gross pay and net pay? Gross pay is total earnings before deductions; net pay is what's left after taxes, benefits, and other deductions — the amount you actually take home.

How do I calculate net pay? Start with gross pay and subtract all deductions: taxes, payroll taxes, benefit premiums, retirement contributions, and any garnishments.

Why is my paycheck less than my salary? Because your salary is gross pay. Taxes, insurance, and retirement contributions are deducted to arrive at your lower net (take-home) pay.

Is gross or net pay used for a loan application? Lenders usually look at gross income to assess borrowing capacity, but budget with net pay since that's what you actually receive.

Start with accurate hours

Gross pay drives net pay, and accurate hours drive gross pay. To keep hours and overtime correct, try Timesheet Maker free.