No matter how many times you read what is the real difference between gross pay and net pay, you tend to get confused. Isn’t it? Or maybe, you are a newbie, a fresher who has no idea about what a payroll management software does, what are arrears and the most basic and important what is known as gross pay and what is known as net pay.
The dilemma can actually end up creating a lot of conflict between the employer and the employee. So, in this blog, we will tell you what is the difference between gross pay and net pay so that you don’t get confused about it ever.
The total amount of money paid in wages is gross pay. Gross pay is what includes the employee contribution towards the benefits like medical claim and professional tax. For instance, if the monthly gross pay of an employee is Rs. 30,000, 12% of the basic salary would be deducted from the gross salary as part of employee contribution towards PF. Apart from this, if there is a medical claim, the employee contribution amount fixed for the same will also be deducted from gross salary.
Apart from this, the amount that an employee is contributing as a part of charity is also deducted from the gross salary. In a nutshell, the gross salary is the salary amount that is the employee should get but due to several deductions gets a lower amount as cash in hand which is known as net pay.
If you have any doubts while discussing the CTC, you should always ask the payroll department or the HR hiring you about the same. It is always better to be crystal clear in money matters and ask away any of your doubts by requesting a CTC breakup.
The amount that an employee gets after all the deductions are done, i.e the amount that an employee receives via check or directly to his salary account is the net pay. The payroll processing software takes into consideration overtime, reimbursements, bonuses and leave without pay, etc.
So, the net pay is received after reducing the fixed amount and other amounts from the gross pay.
Precisely, the gross pay includes the payroll deductions for taxes, voluntary deductions from the gross pay of the employee. After that, whatever is left that remaining amount is the net pay.
Indian employment and labour laws are confusing and payroll compliance tough. So, using payroll management software becomes a necessity to stay compliant and deduct the exact amount that should be deducted from the gross pay of the employee; not more, not less.
So, if you are an employer, you must get a payroll software implemented and if you are an employee, you should use the software for downloading payslips and apply for leaves, and half-day leaves.