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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  =  x 100

=  x 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  = x 100

=  x 100

=  18.9767

=  18.98%