Net pay is the sum an employee receives in their salary after the deductions for taxes and benefits have been made.
In the context of global payroll, net pay can be complicated to calculate because of regulatory differences across different countries.
What is the difference between gross and net pay?
Gross pay encompasses an employee’s earnings before any deductions or taxes are subtracted. Net pay is how much money actually lands in the employee’s bank account after all these subtractions have been made.
How to calculate net pay
Calculating net pay involves subtracting taxes and deductions from an employee’s gross pay.
This process will vary across countries but, in general, it looks something like this:
- Calculating gross pay by multiplying salary by the number of days or hours worked during a pay period
- Subtracting pre-tax deductions like health insurance premiums and retirement plan contributions
- Withholding taxes from income, including federal, state, Medicare, and social security, among others
- Subtracting post-tax deductions like childcare and wage garnishment
Calculating net pay for a global workforce
Calculating net pay for a global workforce can be extra complicated. Since each country has its own taxes and regulatory ecosystems to navigate, knowing how much to subtract from paychecks for each country can be tiresome and can leave the payroll team more susceptible to human error.
Some common challenges include:
- Understanding how to navigate different regulatory ecosystems
- Staying in the know regarding changes in tax laws and requirements
- Subtracting the correct amounts from employees’ paychecks, despite currency fluctuations
In this case, global payment platforms can be useful as they offer expertise into different jurisdictions and regulatory ecosystems while updating constantly in accordance with any changes in legalities or compliance requirements.