Salary net (net) and gross (gross) - what does this mean, how is it calculated, differences

Office management is a living, constantly changing area, into which new terms come every now and then. Recently, entrepreneurs, accountants and employees have come across the increasingly common concepts of “gross salary” and “net salary”. These terms indicate completely different amounts of the same salary.

How to organize office work and document flow in an organization?

We will try to explain below how to figure out what the differences between these phenomena are, whether it is possible to calculate one, knowing the other, how to navigate, what exactly is meant when offering this or that form of wages.

Origin of names

Initially, the terms “gross” and “net” go back to Latin, but their economic use is determined by their meanings in English.

How are wages ?

Where does "gross" come from?

The word “gross” in English, where it came from in our economic vocabulary, has been used in the context of money since the 16th century. It transferred its meaning of “something general, total, total” to the calculation of finance. There are several meanings of this concept.

1. "Gross". In the 16th century, English businessmen used the expression “gross profit,” that is, total profit not cleared of gross expenses and tax components. Today, instead of it, “total profit” is more typical for the English language. Thus, the first meaning of the epithet “gross” in the entrepreneurial sphere is similar to the Russian definition of “gross”.
2. "Wholesale". Another meaning of this term, also going back to its “universality”, is transactions related to the trade in large quantities of goods - “gross”. In English, buy “by the gross” means a wholesale deal.
3. "No deductions." The total composition of the salary, before the deductions required by law are made from it, is also “gross”. This is the meaning used in modern entrepreneurial vocabulary.

Question: Is it legal to index wages every 10 years, while increasing wages by 1%? View answer

What about "net"

In Russian transcription, the word “no” in relation to salary does not sound very optimistic. But you need to take into account the English meaning of this word, which originates from the Italian “netto”, which means “pure”.

Along with the term “gross profit”, the antonymous “net profit” was also used, which, in turn, meant net profit, from which all consumable components were already excluded.

Today, the term “net” in relation to wages means the amount received by the employee in person.

Where are these calculation forms used?

In the modern Russian economy, calculation systems such as net and gross are widely used:

• In construction companies;
• At commercial enterprises;
• In advertising and recruiting organizations;
• In a medium-sized business, where there are 100–200 people under the leadership of the manager;
• In representative offices of foreign companies.

What is the piecework wage system, when and where is it applied - find out here.

Where are gross and net remuneration systems used?

For calculation:

• With managers;
• Project managers;
• Workers;
• Leaders.

In total, such a salary today can be offered to a highly educated specialist at any enterprise.

Pros and cons of payment systems

Each form of remuneration has its own pros and cons for all participants in the economic market.

Gross is preferred by employers as they list a high salary level, which often attracts potential applicants.

At the same time, the future full-time employee, carried away by such a tempting amount of absolutely real money, does not take into account at all that:

• You will have to make deductions from your salary in the amount of 13% for citizens of the Russian Federation and 30% for foreign citizens;
• Often pay for them yourself;
• Calculate deductions;

But in other way:

• A certificate of such a high salary gives prestige and opens many doors;
• A considerable salary helps to resolve financial problems by easily obtaining credit funds.

Net, in turn, is a net salary received in person, and an initially unattractive amount, when calculating all the pros and cons, can become quite acceptable and more profitable than gross.

Important: the net salary specified in the contract cannot be changed; it is a fixed amount.

Definitions of salary types

Salaries for hired personnel in Russia consist of the following components:

• salary;
• various allowances, if provided for by law and the employment contract;
• bonus or other incentive (if provided and/or deserved).

Wages constitute the main form of income for individuals, therefore they are subject to income tax - personal income tax. This factor is the determining factor in the difference between “gross” and “net” wages.

Gross salary in accounting refers to the amount of remuneration for an employee’s work, which includes all components of the salary, including personal income tax. Colloquial synonyms – “Salary according to documents”, “dirty salary”, “black salary”, “gross”.

Net-salary is a monetary amount from which all mandatory tax payments (NDFL) are excluded, that is, the amount of money received by an employee as payment for labor (at the cash register or on a bank card).
Colloquial synonyms: “salary in hand”, “clean”, “white salary”.

What is not included in gross salary

As a rule, there are amounts that the employer pays for the employee, but they are not included in the gross salary. We are talking about contributions to funds. According to general rules, the company is obliged to calculate the following amounts:

1. Contributions to pension insurance. They constitute 22% of the employee’s accrued wages.
2. Contributions to the health insurance fund in the amount of 5.1%. Contributions are distributed between territorial and federal departments.
3. 9% contributions in case of illness or disability due to maternity. It is from these funds that employees are subsequently paid sick leave and child care benefits are provided.
4. Contributions for insurance against accidents or occupational diseases. Their size is not clearly regulated and ranges from 0.2 to 8.5%.

The above amounts directly depend on the employee’s salary, but are not included in the gross salary. The thing is that the employer makes these contributions from his own funds.

Step-by-step instructions for calculating gross salary

To calculate gross wages, accountants usually use the following step-by-step instructions.

1. Determine the salary due to the employee in accordance with the established tariffs. For example, they calculate the amount of money earned based on the approved rates and work performed, or determine the salary for a specific specialist.
2. They increase the previously calculated amount for bonuses, compensation, and additional payments. At this stage, all allowances due to the employee are included.
3. A regional multiplying factor is applied. It is used only in regions with difficult climatic conditions.
4. The final amount is determined and reflected on the payment in the “Total Accrued” column.

Next, the required deductions will be deducted from the salary received. However, these actions are included in the calculation of net wages.

Example of gross salary calculation

An employee of a production workshop produced 100 units of products against the approved plan of 80 units. For each product, a salary of 250 rubles is charged. If the plan is exceeded by 10%, a bonus of 15% is due, for 20% - a bonus of 25%, for 30% or more - 35%. It is necessary to calculate the employee's gross salary.

First of all, let’s find piecework wages:

100 * 250 = 25 thousand rubles.

In connection with exceeding the plan by 20%, the employee is entitled to a bonus of 25%:

25 thousand rubles. * 25% = 6250 rub.

Let's find the total gross salary: 25 thousand rubles. + 6250 rub. = 31250 rub.

It is on this amount that income tax contributions to the funds will be calculated.

How to avoid getting confused as an employee

The documents formalizing the relationship with the employer indicate the gross salary, that is, the official salary. This happens because it is the employer who is obliged to be a tax agent for his subordinate - to calculate and deduct the required amount of taxes from all wages even before they are paid to the employee himself, and also to report this to the tax authorities.

Sometimes the “gross” amount is indicated in hiring advertisements - after all, a more impressive amount is more attractive to applicants, and not everyone knows the meaning of the term. Thus, formally the advertisement does not contain false information, while the employee will receive a significantly smaller amount than he read.

IMPORTANT! If you are attracted by the number in the advertisement indicating the size of your future salary, do not rush to rejoice at the generous offer; check whether the employer means “gross” or “net”.

What is Gross salary?

Let's start with the first value and find out what the gross salary is. This term came to us from English. In English-speaking countries, this is how they designate the level of income accrued to each employee.

Gross salary is translated literally as gross income, that is, the one that was accrued to the employee in general. Until recently, this term was replaced by the concept of “dirty wages”.

To receive earnings with dirty money means to announce the amount that is due to the worker before the official calculation of tax rates from it.

So, Gross’s salary is income, which consists of the salary and all the allowances due to it. Allowances can be bonus payments, length of service, payments for special working conditions and much more. In our country, accountants also use the common definition of “gross salary” to determine accrued amounts without deducting taxes.

"Black" and "white"

It is no secret that black and white salaries are also popularly referred to as the amount “in the envelope” and the legal salary, respectively. An entrepreneur can pay “gross” to staff, and reflect a smaller amount in documents in order to reduce insurance payments and taxes for themselves. At first glance, it is more profitable for an employee to receive an amount from which personal income tax is not collected monthly. However, in fact, by not transferring the necessary funds to the Pension Fund, the employer “robs” the employee’s future pension. In addition, “black wages” is an economic crime, and if detected by tax authorities, it is seriously punishable.

How to calculate net salary

If you do not go into small details (the amount of insurance premiums, the personal income tax rate, which may differ by category of taxpayer, the amount of tax deductions), then you can calculate net earnings as follows:

Net income = Gross salary – income tax at the rate of 13%.

Example 1. During the interview, an income of 100,000 rubles was announced. This is gross income.

This means that the applicant can count on receiving in hand or on a card blank:

100,000 – 13,000 = 87,000 rubles. This is net earnings.

When calculating income tax, an individual may be provided with tax deductions. This means that a certain amount of his earnings will not be subject to income tax.

The full list of tax benefits is reflected in the Tax Code of the Russian Federation. The most common deductions:

• for disabled people, former military personnel (full list, Article 218);
• for the first and second child until they reach the age of 18;
• for the third and each subsequent minor child;
• for disabled children;
• liquidators of the accident at the Chernobyl nuclear power plant, etc.

Example 2. Upon hiring, the chief accountant was given a salary of 100,000 rubles. He has three minor children.

Net salary is calculated as follows:

• We determine the amount of non-income taxable amounts. The tax deduction for two children under 18 years of age is 1400 * 2 = 2800 rubles, for a third child – 3000 rubles. 5,800 rubles per month will not be subject to income tax;
• Let's calculate the amount of income tax for an individual: (100000-5800)*13% = 12246 rubles;
• net, the salary of the chief accountant will be 100,000 – 12,246 = 87,754 rubles.

We count “gross” and “net”. Specific calculation examples

Since the difference between these types of payroll is directly related to income tax, its rate matters. For residents of the Russian Federation - the majority of employees who receive monthly salaries - it is 13%. If the salary is paid to a non-resident, 33% will have to be deducted from it monthly.

Therefore, knowing any of the indicators, you can calculate the required amount.

Let's look at specific numbers for Russian resident employees.

For example , the amount of gross salary specified in the employment contract is 100 thousand rubles. This means that the employee will receive 100,000 minus 13% every month, that is, the net salary will be 87 thousand rubles.

The calculation is the other way around: the employee received 15,800 rubles on his salary card. How can I find out how much income tax my employer has deducted from me? To do this, divide the net salary by a coefficient of 0.87 (100%-13% personal income tax), and then compare the resulting values. So, 15800 / 0.87 = 18161, and then subtract 18161 – 15800 = 2361. Thus, the monthly amount of personal income tax is 2,361 rubles.

General concepts

As stated in article No. 129 of the Labor Code of the Russian Federation, wages refer to an employee’s remuneration for work, the amount of which varies depending on the complexity, quality and other criteria of the work performed, as well as other payments.

The right of an employee to receive a salary not less than the minimum wage established in the Russian Federation is guaranteed by the Constitution of the Russian Federation.

The provisions on the form of payment, provided state guarantees and other conditions for making payments to employees are specified in Chapter 20 of the Labor Code (Articles 129-132).

Read our article about what wages are.

Details about the established minimum wage, calculation of wages, terms of payment, legality of deductions and other nuances related to wages are stated in Chapter 21 of the Labor Code (articles numbered 133-158).

A question of benefit

Employees often ask which salary is more profitable, “gross” or “net”. Meanwhile, this formulation of the question is not entirely correct, since this is in fact the same value, the same indicator, simply presented in different forms. The amount of the salary expressed in “gross” is numerically greater than in “net”, but this is not important for the employee, since he will still receive the amount of money from which income tax has already been deducted, no matter how it is reflected in the financial documentation and employment contract.

NOTE! If you are a future or currently employed employee and are faced with the terms “gross” and “net” in relation to your potential salary, do not miss this important point so as not to experience disappointment, having received at the end of the month significantly less than you expected, and absolutely legal.

How to calculate them

Every employee can do this. “Gross” is prescribed in the employment contract during employment. Knowing the amount of income tax and the amount of other deductions or benefits (if they exist), you can make fairly simple calculations. The final result must coincide with what is written on the payslip.

Calculation example

In order to accurately understand the difference in concepts, it is necessary to give several examples.

Example 1. “Gross” is 35,000 rubles. There are no tax preferences or salary deductions. Calculation:

1. 35,000 * 13% = 4,550 – the amount of personal income tax payable.
2. 35,000 – 4,550 = 30,450 rubles – amount to be paid in person.

Income “no” is 30,450 rubles.

Example 2. “Gross” is 42,000 rubles. The employee has 2 minor children. They are entitled to deductions in the amount of 1,400 rubles each. Calculation:

1. 1,400 + 1,4000 = 2,800 rubles – tax-free amount;
2. 42,000 – 2,800 = 39,200 rubles – tax base for calculating personal income tax;
3. 39,200 * 13% = 5,096 rubles – personal income tax;
4. 42,000 – 5,096 = 36,904 rubles will be received by the employee.

Income “no” will be 36,094 rubles.

Example 3. The “gross” salary is 39,800 rubles. The employee has 2 children, for one of them he pays child support in the amount of 25% of his salary. Calculation:

1. 1,400 + 1,400 = 2,800 rubles are not taxed.
2. 39,800 – 2,800 = 37,000 rubles – tax base.
3. 37,000 * 13% = 4,810 rubles – personal income tax.
4. 39,800 – 4,810 = 34,990 – salary after tax.
5. 34,990 * 25% = 8,747.5 rubles - this is the amount of child support.
6. 34,990 – 8,747.5 = 26,242.5 rubles – will be received in hand.