Gross pay and net pay¶

Every pay has two key numbers. Gross pay is the amount an employee earns before anything is taken out. Net pay is the amount left after deductions. Net pay is also called take-home pay, because it is what the employee actually receives.

The gap between the two is the deductions. The largest deduction is usually the tax the employer must take out and send to the Australian Taxation Office (ATO).

In one line

Gross pay is the amount before deductions. Net pay is what is left after PAYG withholding and any other deductions — the take-home amount.

Why this matters¶

Employees often ask why their pay is less than the rate they agreed to. The answer is the deductions. Knowing the difference between gross and net pay helps you read a payslip and answer that question.

What you will learn¶

What gross pay is
What net pay is
How deductions turn gross pay into net pay

Understanding the concept¶

Gross pay is the full amount earned for the pay period. It can include the ordinary rate for hours worked, plus any loadings, allowances, bonuses or penalty rates.

From the gross pay, the employer takes out deductions. The main one is PAYG withholding. PAYG stands for pay as you go. The ATO explains that an employer withholds an amount from an employee's pay and sends it to the ATO. This goes towards the employee's tax for the year.

There can be other deductions too, such as an amount the employee has agreed to.

Net pay is what is left once all the deductions are taken from the gross pay. This is the amount that lands in the employee's bank account.

For accountants & bookkeepers

The ATO describes PAYG withholding as amounts an employer withholds from payments to workers and remits to the ATO, helping the payee meet their end-of-year tax liability. On the activity statement, gross payments sit at label W1 and the amounts withheld sit at label W2.

Example¶

Alex works a week and earns a gross amount for the hours worked. The employer works out the PAYG withholding on that gross amount and takes it out. The employer sends that amount to the ATO. The amount left over is Alex's net pay, which is paid into Alex's bank account. The payslip shows both the gross pay and the net pay, so Alex can see how the two numbers connect.

Common mistakes¶

Treating gross pay as take-home pay — the take-home amount is the net pay.
Forgetting that PAYG withholding is taken from gross pay, not added on top.
Thinking net pay is the same for everyone on the same gross — deductions differ.

How this works in myaccountant¶

In the app — when you run a pay run, myaccountant works out the gross pay, the PAYG withholding, and the net pay for each employee. Both the gross and net amounts appear on the payslip you can email to the employee.

Key points¶

Gross pay is the amount before any deductions.
Net pay is what is left after deductions — the take-home amount.
PAYG withholding is usually the largest deduction.
The employer sends the PAYG withholding to the ATO.
The payslip shows both the gross pay and the net pay.

Learn next¶

General information only — not tax, super or financial advice.

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