What is Net Pay?

Commonly known as take-home pay, net pay is the income employees receive after employers remove withholdings and payroll deductions from their salary or wage. For instance, if an employee makes $9,000 per month and has $2,000 deducted for benefits and taxes, that worker’s net pay would be $7,000. 

 These deductions can either be voluntary or mandatory. Mandatory deductions are deductions required by law, such as:

• Local income taxes
• Federal income taxes
• State income taxes 
• Wage garnishments

On the other hand, voluntary deductions apply when an employee requests to pay for services like:

• Retirement savings plan
• Union dues
• Medical care
• Health savings account 

For companies paying their workers either hourly or monthly salaries, it’s crucial for HR professionals to know the distinction between net pay and gross pay.

Aside from helping you meet labor compliance laws, this can foster more communication and trust between you and the other employees, which can help boost employee experience.