Gross vs net salary: reading your payslip
What sits between the salary in your offer letter and the money that reaches your account, and how to negotiate a net figure.
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Two numbers for the same job
Gross salary is what your employer agrees to pay before anything is taken out. Net salary, also called take-home pay, is what arrives in your bank account. The gap between them is made of income tax, social contributions and any deductions you have agreed to, such as pension savings or insurance.
In some countries, including most Gulf states, employees pay little or no income tax, so gross and net are close. In others the gap can be a third of the salary or more, which is why comparing offers by gross figure alone is misleading.
What is taken out, in order
A payslip normally works from top to bottom. Pre-tax items such as pension contributions come off first and reduce taxable income. A tax-free allowance is then subtracted. Income tax is calculated on what remains, usually in bands. Social contributions follow, and finally any after-tax deductions.
Progressive bands tax each slice of income at its own rate. Only the income inside a higher band is taxed at the higher rate, so a raise never reduces your take-home pay by pushing you into a new band. The Income Tax Estimation Calculator shows the tax each band contributes.
Marginal and effective rates
Your marginal rate is the tax on your next unit of income. Your effective rate is the total tax and contributions divided by gross income. The effective rate is always lower than the top marginal rate, because the lower slices were taxed at lower rates. When you consider overtime or a bonus, the marginal rate is the one that matters.
Negotiating from net to gross
If you know the take-home pay you need, work backwards. Because tax is progressive, each extra unit of net pay costs more gross pay at higher incomes, so there is no simple multiplier. The Net-to-Gross Salary Estimator searches for the gross figure that produces your target net.
The calculators ask for the rates and bands you enter, and the defaults are only examples. Use the figures from your country’s tax authority and your own payslip, and treat the result as an estimate.