Net Pay
The amount received after all deductions.
Net pay (take-home pay) is the amount an employee actually receives after all deductions—federal and state income tax, FICA, health insurance premiums, retirement contributions, garnishments, and other withholdings. Net pay is typically 60–75% of gross pay depending on tax rates, benefits, and voluntary deductions.
Formula
Net Pay = Gross Pay − Federal Tax − State Tax − FICA − Benefits − Other DeductionsExample
An employee with $5,000 gross pay has $750 withheld for federal tax, $250 for state tax, $382 for FICA, $200 for health insurance, and $250 for 401k—net pay is $3,368.
Why It Matters for Your Business
Employees care about net pay, not gross—understanding the gap helps set realistic salary expectations and ensures withholdings are calculated correctly.
Related Terms
More Payroll Terms
Employee Benefits
Non-wage compensation like health insurance and retirement plans.
Gross Pay
Total earnings before any deductions.
Overtime Pay
Additional compensation for hours worked beyond 40 per week.
Hourly Rate
Pay rate calculated per hour worked.
Salary
Fixed annual compensation regardless of hours worked.
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