Office management is a living, constantly changing area, into which new terms come every now and then. Recently, entrepreneurs, accountants and employees have come across the increasingly common concepts of “gross salary” and “net salary”. These terms indicate completely different amounts of the same salary.
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We will try to explain below how to figure out what the differences between these phenomena are, whether it is possible to calculate one, knowing the other, how to navigate, what exactly is meant when offering this or that form of wages.
Origin of names
Initially, the terms “gross” and “net” go back to Latin, but their economic use is determined by their meanings in English.
How are wages ?
Where does "gross" come from?
The word “gross” in English, where it came from in our economic vocabulary, has been used in the context of money since the 16th century. It transferred its meaning of “something general, total, total” to the calculation of finance. There are several meanings of this concept.
- "Gross". In the 16th century, English businessmen used the expression “gross profit,” that is, total profit not cleared of gross expenses and tax components. Today, instead of it, “total profit” is more typical for the English language. Thus, the first meaning of the epithet “gross” in the entrepreneurial sphere is similar to the Russian definition of “gross”.
- "Wholesale". Another meaning of this term, also going back to its “universality”, is transactions related to the trade in large quantities of goods - “gross”. In English, buy “by the gross” means a wholesale deal.
- "No deductions." The total composition of the salary, before the deductions required by law are made from it, is also “gross”. This is the meaning used in modern entrepreneurial vocabulary.
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What about "net"
In Russian transcription, the word “no” in relation to salary does not sound very optimistic. But you need to take into account the English meaning of this word, which originates from the Italian “netto”, which means “pure”.
Along with the term “gross profit”, the antonymous “net profit” was also used, which, in turn, meant net profit, from which all consumable components were already excluded.
Today, the term “net” in relation to wages means the amount received by the employee in person.
Definitions of salary types
Salaries for hired personnel in Russia consist of the following components:
- salary;
- various allowances, if provided for by law and the employment contract;
- bonus or other incentive (if provided and/or deserved).
Wages constitute the main form of income for individuals, therefore they are subject to income tax - personal income tax. This factor is the determining factor in the difference between “gross” and “net” wages.
Gross salary in accounting refers to the amount of remuneration for an employee’s work, which includes all components of the salary, including personal income tax. Colloquial synonyms – “Salary according to documents”, “dirty salary”, “black salary”, “gross”.
Net-salary is a monetary amount from which all mandatory tax payments (NDFL) are excluded, that is, the amount of money received by an employee as payment for labor (at the cash register or on a bank card). Colloquial synonyms: “salary in hand”, “clean”, “white salary”.
What does the term gross salary mean?
The employer deducts from the salary the amount needed to pay taxes, so the salary transferred to the employee’s card or handed out will be less.
In this regard, it makes sense to talk about: Gross salary, or the amount that was not affected by deductions and which is reflected in the employment contract.
In other words, if the amount specified in the contract is 10,000, then these 10,000 are the size of the gross salary, colloquially also called “dirty” or “gross”;
Salary net, or the amount remaining after paying all taxes, which is reflected in the statement for receiving money.
Typically, the constant tax rate of income tax (personal income tax) is 13% for residents (registered in the Russian Federation) and 30% for non-residents (registered in other states).
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In other words, out of 10,000 “dirty” accrued in accordance with the employment contract, the employee will receive 8,700 (10,000-1,300), also called “clean”. Accordingly, the non-resident will receive 7,000 of this amount.
How to avoid getting confused as an employee
The documents formalizing the relationship with the employer indicate the gross salary, that is, the official salary. This happens because it is the employer who is obliged to be a tax agent for his subordinate - to calculate and deduct the required amount of taxes from all wages even before they are paid to the employee himself, and also to report this to the tax authorities.
Sometimes the “gross” amount is indicated in hiring advertisements - after all, a more impressive amount is more attractive to applicants, and not everyone knows the meaning of the term. Thus, formally the advertisement does not contain false information, while the employee will receive a significantly smaller amount than he read.
IMPORTANT! If you are attracted by the number in the advertisement indicating the size of your future salary, do not rush to rejoice at the generous offer; check whether the employer means “gross” or “net”.
"Black" and "white"
It is no secret that black and white salaries are also popularly referred to as the amount “in the envelope” and the legal salary, respectively. An entrepreneur can pay “gross” to staff, and reflect a smaller amount in documents in order to reduce insurance payments and taxes for themselves. At first glance, it is more profitable for an employee to receive an amount from which personal income tax is not collected monthly. However, in fact, by not transferring the necessary funds to the Pension Fund, the employer “robs” the employee’s future pension. In addition, “black wages” is an economic crime, and if detected by tax authorities, it is seriously punishable.
We count “gross” and “net”. Specific calculation examples
Since the difference between these types of payroll is directly related to income tax, its rate matters. For residents of the Russian Federation - the majority of employees who receive monthly salaries - it is 13%. If the salary is paid to a non-resident, 33% will have to be deducted from it monthly.
Therefore, knowing any of the indicators, you can calculate the required amount.
Let's look at specific numbers for Russian resident employees.
For example , the amount of gross salary specified in the employment contract is 100 thousand rubles. This means that the employee will receive 100,000 minus 13% every month, that is, the net salary will be 87 thousand rubles.
The calculation is the other way around: the employee received 15,800 rubles on his salary card. How can I find out how much income tax my employer has deducted from me? To do this, divide the net salary by a coefficient of 0.87 (100%-13% personal income tax), and then compare the resulting values. So, 15800 / 0.87 = 18161, and then subtract 18161 – 15800 = 2361. Thus, the monthly amount of personal income tax is 2,361 rubles.
How to calculate the gross salary, knowing the net salary?
The net salary calculation formula itself is as follows: gross salary multiplied by the personal income tax deduction.
Or, if we take the example considered, then for an employee living in Russia, it will be equal to 10,000* (100% -13%), or 10,000+87%, or 0.87.
Accordingly, to recalculate the gross salary there will be an inverse formula: the net salary will have to be divided by 87% or by 0.87.
But there is one point.
When multiplying wages by the tax rate, the final amount may not coincide with the amount specified in the contract
For clarity, let’s denote the desired salary gross by the letter x. And we get x-NDFL=10000. The formula for calculating personal income tax is familiar to us, so the result will be x- (x*13%) = 10000.
If you take the total salary out of brackets, you get x*(100%-13%)=1000. It remains to move part of the percentages to the right and get in the end: x=10000/0.87. And x is 11494.25 rubles. It is the last amount received that is considered to be the gross salary.
A question of benefit
Employees often ask which salary is more profitable, “gross” or “net”. Meanwhile, this formulation of the question is not entirely correct, since this is in fact the same value, the same indicator, simply presented in different forms. The amount of the salary expressed in “gross” is numerically greater than in “net”, but this is not important for the employee, since he will still receive the amount of money from which income tax has already been deducted, no matter how it is reflected in the financial documentation and employment contract.
NOTE! If you are a future or currently employed employee and are faced with the terms “gross” and “net” in relation to your potential salary, do not miss this important point so as not to experience disappointment, having received at the end of the month significantly less than you expected, and absolutely legal.
How are “gross” and “no” salaries calculated?
Gross salary is a term that is often used by employers during the hiring process.
It is important for potential applicants to understand the difference between net and gross income. Gross salary is the amount of salary that will be regularly accrued to the employee for the performance of his labor functions. From the specified amount of earnings, personal income tax will be withheld in the amount of 13%, so the employee will not receive the specified amount in hand. Gross salary is also sometimes called “dirty”.
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Often, future employees believe that by indicating the gross salary, the employer wants to deceive them: after all, this value is greater than what the employee will actually receive. In fact, by indicating a gross salary, the employer does not violate the law, and under certain conditions, an employee can receive a gross salary without having it reduced by tax.
In order to understand the size of his future income, an employee should take into account some nuances. Thus, the indicated gross salary value can include not only the monthly salary, but also bonuses and allowances. Moreover, in fact, the amount of employee income may change taking into account annual and quarterly bonuses.
Before applying for a job, an employee should become familiar with the company's current remuneration system. It may be specified in a collective agreement or other local legal act.
note
Particular attention should be paid to the procedure for calculating and paying bonuses: what criteria does the employer follow when calculating the bonus, what is its size (is there a minimum value).
You also need to take into account that employees are paid not only on a time-based basis, but also on a piece-rate basis, as a certain percentage for the amount of work completed.
Why does it make sense for an employee to know the gross salary? After all, the tax rate on income from the performance of labor functions is the same for all employees and is 13% (according to paragraph 1 of Article 224 of the Tax Code). The employer, as a tax agent, is obliged to withhold and transfer the amount of personal income tax to the budget. But still, the gross salary indicator is more informative than the net salary indicator.
The fact is that many employees can count on receiving tax deductions, which reduce the tax base and allow them to receive a larger salary. Thus, employees are entitled to social deductions provided for minor children. To receive them, the employee must contact the employer with an application under Art. 218 Tax Code.
Employees are also entitled to property deductions when purchasing an apartment. They can receive their full salary until the amount of unwithheld taxes reaches 260 thousand rubles. (according to Article 220 of the Tax Code).
Often, employers pay part of the salary “in an envelope” in order to reduce the tax burden.
The amount of salary after taxes is also called “net.” This definition comes from the English net, or "ultimate". The difference between gross and net wages is personal income tax of 13%.
In fact, gross or net salary is the same value, but in the latter case this value is reduced by personal income tax.
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For example, the gross salary before taxes of an employee is indicated as 35,000 rubles. Personal income tax for this level of income is 4,450 rubles. The employee will receive 30,450 rubles, which will be a net salary.
If the specified employee is entitled to receive a social deduction, then his net salary will be calculated slightly differently. For example, an employee filed a deduction for a child in the amount of 1,400 rubles. Personal income tax will be withheld not from 35,000 rubles, but from the amount reduced by 1,400 rubles. (RUR 33,600). Personal income tax will be 4368 rubles. The size of the net salary will not be 30,450 rubles, as in the example above, but 30,632 rubles. (35000-4368).
If an employee has filed a deduction in the full amount of personal income tax (for example, when receiving a property deduction), then his net and gross wages will be equal.
For example, if an employee receives 26,300 rubles, then his income for receiving subsidies will be considered 30,000 rubles.
Thus, gross and net salaries are usually indicated in job advertisements. These are quite important indicators, but they do not always accurately reflect the size of an employee’s potential income.
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Nowadays, employer advertisements increasingly include terms such as gross salary and net salary. How to understand these terms and what they mean? And how to choose a more attractive offer? Let's try to find answers to these questions below.
Gross salary is the salary set to the employee for the full period worked, which is indicated in the so-called “black” version, that is, in full, without taking into account various deductions.
Such deductions include, in particular, personal income tax, which in our country is 13%.
Salary net is the salary that a potential employer indicates minus all deductions. Roughly speaking, this is a “white” salary, what you will actually receive in your hands after the employer withholds taxes from you.
Knowing the size of the gross salary, it will be very easy to calculate the amount you can expect to receive - to do this, you just need to subtract 13% of the income tax from the specified amount of payment.
If you need to do this “in your head”, then just remember the banal mathematics: you need to calculate how much 1% of the amount is, multiply it by the required number of percentages and subtract the resulting amount from the total amount.
note
So, for example, an employer promises you a salary of 20,000 rubles. Dividing 20 thousand by 100 - we get 200 rubles - this is 1% of the salary. Income tax is 13%, which means 200 needs to be multiplied by 13 - it turns out 2,600 rubles.
Now we subtract the amount of income tax from the gross salary: 20,000 - 2600 = 17,400 - this is the amount actually received monthly.
If you need to find out how much income tax you pay per month, and your salary is indicated by net, then to calculate it you will need to divide the indicated salary by a constant value of 0.87, and then find the difference in the resulting amounts. For example: divide 17,400 by 0.87 and get 20,000 rubles; subtract 17,400 from 20 thousand rubles and get 2,600 rubles of income tax paid per month.
Which is more profitable?
It is impossible to answer the question which salary is more profitable: the indicated gross salary or the net salary, since in essence they are the same thing and both indicators are absolutely equivalent.
The only thing, when looking for a job, do not forget to pay attention in the advertisements to what salary is indicated: “white” or “black”, otherwise it may turn out that you get a job for 50 thousand rubles, but only get 43.5.
And there is no deception, you just didn’t pay attention to the signature next to the amount “the salary amount is gross.”
The terms Gross and Net are common on the international market and are increasingly used by Russian employers.
It is known that both definitions relate to salary, but what do they mean? How are they calculated?
Let's look at these issues in detail.
Many businesses use the words “gross” and “net” to serve their own interests.
What could be the consequences?
At the interview, we will talk about one salary amount, which will be indicated in the contract, but in fact, the employee who gets the job will receive a smaller amount.
The main thing is that according to the law, no deception on the part of the organization occurs. The candidate just needs to pay attention to the small signature next to the indicated amount.
Almost all employers indicate a gross salary in their advertisements.
But is this always the case? It is possible to give an unambiguous answer only by performing simple calculations and understanding the features of these terms.
The term “gross” appeared in England and began to be used in the 16th century. Translated from English it means “gross” or “gross”. Now used in accounting to determine salary levels.
For example, the following advertisement was received: “An administrator-manager of a car service center is required. Salary gross 25,000 rubles.” What does it mean?
An employee who gets a job in a company will actually receive in hand: 25,000 - (25,000 x 13%) = 21,750 rubles.
note
When determining the amount of wages corresponding to the gross, the regional coefficient is added to the salary established by the staffing table.
In practice, the term Gross can be replaced by:
- brutto or gross;
- "dirty" salary.
The word “net”, if you look in the English-Russian dictionary, is translated as “pure”, “final”. Indeed, net salary is the amount that the employer pays in person to the employee after taxes are withheld.
Alternative names:
- netto or net;
- "net";
- "net salary"
What is the difference?
The difference between the salaries in question is made up of the only tax – personal income tax.
Employers independently calculate and transfer the required amount to the Tax Service.
How to calculate?
To convert a “gross” salary to “net”, it is enough to subtract 13% from the salary. But when calculating, it is necessary to take into account that for some categories of citizens deductions are provided that reduce the tax base and the withheld amount.
These may include:
- employees raising a minor child;
- military personnel;
- people who have guardianship;
- parents of disabled children.
