Gross vs net salary: what comes off your pay, and how to compare offers

An offer says £45,000 and the first payslip says £2,850. The gap is the difference between gross and net, and it is where most salary comparisons go wrong. This guide names the deductions, shows the conversions between hourly, monthly and annual figures that the salary converter performs, and gives a method for comparing offers that don't look alike. General information, not financial or tax advice; rules differ by country and change yearly.

Gross, net, and the words in between

Gross pay is the headline figure: salary before anything is taken off. Net pay (take-home) is what reaches your account. Between them sit statutory deductions (income tax, social insurance contributions) and voluntary ones (pension contributions, salary-sacrifice schemes, union dues, insurance). Taxable pay is gross minus the deductions that come off before tax, which is why a pension contribution reduces your tax bill. Employers also pay costs on top of gross — employer social contributions, pension matching — which appear in a "total compensation" figure but never in your account.

What comes off

• Income tax, usually in bands: a tax-free allowance, then rising rates on successive slices. Only the slice above each threshold is taxed at the higher rate — moving into a higher band never reduces take-home.
• Social insurance (National Insurance, Social Security, superannuation levies) — a percentage with its own thresholds.
• Pension contributions — often 3–8% of gross, usually matched in part by the employer; the single best-value deduction for most people.
• Student loan repayments, health insurance premiums, court orders, and salary-sacrifice items (bikes, cars, childcare) where offered.

Net pay as a share of gross runs from around 65% to 80% for typical salaries in most developed countries; the exact figure depends on band thresholds that change each year, which is why a tax-year-specific calculator from your tax authority beats any generic one.

Hourly, monthly, annual

Annual = hourly × hours per week × weeks per year. The default assumption is 52 weeks (paid holiday included in salaried work); for hourly contracts without paid leave, use the weeks actually worked (46–48). £45,000 on 37.5 hours is £23.08 an hour; £18 an hour on 40 hours is £37,440 a year. Monthly is annual ÷ 12, weekly ÷ 52, daily ÷ working days (about 260, or 252 net of public holidays — How working days are counted — and why 'within 5 business days' means different things). Watch the hours: two "£40,000" jobs at 35 and 40 hours a week differ by 14% per hour, and the hours calculator adds up a week that isn't neat. Overtime rules — the overtime pay calculator — change the arithmetic for hourly staff.

Comparing two offers

1. Convert both to annual gross on the same hours basis.
2. Add employer pension contributions and any bonus you'd reasonably expect (at, say, half the target).
3. Subtract what each costs you: commuting (the fuel cost calculator for the drive), parking, required equipment, lost benefits.
4. Estimate net using your tax authority's calculator for the year.
5. Only then compare — and weigh holiday days (each is about 0.4% of salary), flexibility and progression, which the number can't hold.

Caveats

Tax residence, marital status, dependants, region (state taxes in the US, cantons in Switzerland, Scottish rates in the UK) and benefit tapers all change the net figure, sometimes sharply — some income ranges have effective marginal rates over 60% where allowances withdraw. Bonuses and overtime are taxed at your marginal rate, so they feel smaller than expected. And a payslip shows year-to-date figures for a reason: check them against your tax code each April or January. How VAT actually works covers the other tax you meet daily; the VAT calculator the arithmetic.