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Gross and Net Pay

When we are talking about incomes, it is important to understand the concepts of gross and net pay.

Gross pay  is the total amount a person earns, while net pay is the amount remaining after income tax and other deductions. So,

Net Pay  =  Gross Pay  –  Tax  –  Other deductions.

There can be a host of deductions, some of which are:

  • retirement fund contributions
  • private health insurance contributions/instalments
  • corporate/union fees
  • direct debit for bills
  • savings, etc.

 

Example 1 : Sally is a teacher and earns $837.65 per week and has deductions of $213.35 for tax, $49.75 for retirement funds, $19.83 for her health fund and $12.36 towards the teachers union fees. What is net pay, and income tax as a percentage of her gross pay.

a) Her net pay  =  Gross Pay  –  Tax  –  Deductions

=  837.65  –  213.35  –  49.75  –  19.83  –  12.36

=  $542.36

 

b) Income tax as a percentage of her gross pay (correct to 1 decimal place)

Income tax rate  =  {tax}/{gross pay}x 100

=  213.35/837.65x 100

=  25.4700

=  25.5%

 

Example 2 : Frank earns a salary of $57,655

a) What is his fortnightly salary:

Fortnightly salary = 57,655 ÷ 26 = $ 2217.50

 

b) Each fortnight, his deductions are $ 421.19 as tax, $22.84 for a health fund, $9.15 for life insurance and $15.38 for car loan repayments. What is his net pay?

Net pay  =  Gross pay  –  Tax  –  Deductions

=  2217.50  –  421.19  –  22.84  – 9.15  –  15.38

=  $1748.94

 

c) What percent of Frank’s gross pay is paid in tax (to 2 decimal places)?

Tax rate  = {tax}/{gross pay}x 100

=  421.19/2219.50x 100

=  18.9767

=  18.98%