Gross salary typically refers to your pay before any deductions have taken place. A gross salary may include such items as basic pay, car allowance, stipend, bonus or commission to name but a few.
A deduction is a term that signifies any sum of money that is deducted or taken out from a workers earnings by their employer for different reasons. These deductions can either be mandatory or optional.
Mandatory deductions
These are legal deductions that are mandated by law, such as income tax or social security. Whilst mandatory deductions differ from country to country, almost all of them share these two types or mandatory deduction, and all countries differ in how they are individually calculated. Deductions in this category are typically changed periodically through a governmental budget which adjusts the percentage rates or thresholds and then becomes law for an employer to withhold from a workers pay.
The deductions from all workers are then consolidated by the local payroll department and are then paid to the correct governmental department following the deduction from pay.
Other mandatory deductions are more individual in nature. Please see this help section on garnishments from pay for more information.
Optional deductions
These are deductions that are mutually agreed upon by the employer and the employee, for instance, life insurance or a voluntary pension arrangement. More often than not, such deductions are typically paid to a non-governmental/private company.
Pre-tax/post-tax deductions
Mandatory or optional deductions can be deducted from your pay in multiple ways. This depends on the type of deduction, but is also country specific in many instances. Pre-Tax Deductions are the amounts subtracted from an employee’s earnings prior to the calculation of taxes. These deductions are made from the employee’s total earnings and serve to decrease their taxable income. Post-Tax Deductions are the amounts subtracted from an employee’s take-home earnings (net pay). These deductions do not decrease the taxable income and hence, do not influence the amount of income taxes that are due.
Net pay
Net pay is the amount that is sent to your bank as the final amount after any deductions (mandatory or optional) have taken place. It is known by many other names around the world including take home pay, net salary, net wage, or final pay to name but a few. You can find more information on net pay and where to find this on your payslip in the below article link.