When managing a company and its human resources, it is vital to know the difference between gross salary and net salary to avoid misunderstandings with workers or future employees.
The first thing is to know its definition and characteristics in order to correctly differentiate them.
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In this article you will find:
What is the gross salary?
It is the sum of all the amounts that a certain worker receives on his payroll, it includes his base salary and the Supplements if they exist, such as extra salary payments, benefits, social security compensation, among other.
When discussing or negotiating a contract, the gross salary refers to the total amount without discounting contributions to social security or income tax withholdings for individuals (IRPF).
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What is the net salary?
The net salary consists of the economic amount that the worker actually receives. Said amount is obtained after subtracting from the gross salary the worker's contributions to social security and the applicable withholding of personal income tax.
These concepts are essential to understand how to structure payroll and to know how much money is charged each month.
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It is not difficult to tell the difference, once you learn it, when you talk about the salary in a certain job you will know how to differentiate between the salary without the withholdings of law and what you actually charge.
Structuring of salaries
Salaries are structured through the individual contract or by collective bargaining, in this structure it must contain:
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Base salary:
It is the compensation to the worker fixed per unit of time or labor. Its amount is established according to the categories in the collective agreements.
Salary supplements:
They are the improvements to the base salary, adjusted in the laws or in the collective agreements, it is divided into: in:
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- Personal profiles
- Antiquity
- Special wisdoms.
- Complements of the job, such as toxicity, dangerousness, shift work, residency jobs.
- Supplements for quantity and quality at work.
- Overtime, understood as those hours that are overworked and are paid according to the amount that is set and is always an amount greater than that of ordinary hours.
- Extraordinary bonuses are periodic perceptions, such as extraordinary payments or profit shares.
How to calculate a gross salary
Accruals:
The payroll has a session where it indicates the accruals that will be discounted to obtain the net salary. The gross salary, as previously stated, is the amount of money that the company pays for a job, which is subject to withholdings, which will be discounted. Add up the amounts of the different concepts subject to tax withholdings such as the base salary, salary supplements, extra payments, child support.
Contribution base:
The items that are not subject to tax withholdings such as mobilization expenses, compensation and other non-salary items must be added.
The payroll reflects the contribution base section, in which only allowances, allowances, overtime and Social Security benefits can be excluded.
Number of payments:
To conclude, the two estimates must be added, resulting in the total accrued, which must be reflected in the payroll.
That is the monthly salary and that will be used as a basis for knowing the net salary, which is what you are actually going to receive.
If this result is multiplied by the number of pays and the Annual gross salary.
How to calculate net pay
When you have a job offer and they talk to you about the annual or monthly gross, but you would like to know the net salary, since it is what really you will receive month after month, you can base yourself on the following tips and calculate it yourself in this way to avoid surprises when the day of pay.
It is quite simple, to calculate the net salary you must add the Social Security withholding, with the personal income tax and then subtract it from the gross salary.
It is important before starting with this calculation to know the gross salary and to know what type of contract represents the employment relationship, if it is indefinite or temporary since, depending on the modality, Social Security will subtract a percentage determined.
For example:
- Worker with a temporary contract, the contribution to subtract is 6.4% of the gross salary, which will go to Social Security.
- Worker with a permanent contract, the withholding contribution is 6.35%.
Then the income tax discount must be calculated, which varies depending on the salary received, and ranges from 2% to 46% supported by the personal and social condition of the worker, taking into account the number of children, marital status, physical conditions, among others. For this, the specific case and the percentage that corresponds to the calculation of each individual must be ascertained.
Once these discounts have been calculated, they are added to calculate the total discount, and once this sum is made, the total is subtracted from the gross salary.
To recap the main difference between gross salary and net salary, they are that gross salary is the total that the company pays an employee for the work performed and the net salary is the amount that the worker actually enjoys after having his gross salary subjected to the deductions made by law. In other words, the difference is that the gross salary is larger than the net salary since it is the one that does not have discounts.
At the time of joining a new job, salaries are mostly negotiated on the basis of an annual gross salary. When the payment is paid in 12 payments, it expresses that the worker has a monthly salary. On the other hand, an annual salary divided into 13 payments refers to a monthly payment plus an extra annual salary, which companies frequently deposit at the end of the year, such as Christmas.
It is worth noting that the contribution of both social security and income tax is divided between the company (the employer) and the worker, the percentage that corresponds to pay each one to pay is established in the general state budgets in force for that year fiscal.
