Net Pay | Meaning and Definition

What is Net Pay?

Net Pay, also known as Net Salary, is the in-hand or take-home salary or pay that an employee receives per month. Employee salaries can be divided into three major sections:

–        CTC (Cost to Company): This means the complete package that is being offered to an employee. This includes the complete cost to the company for hiring a particular employee and includes all the benefits and what they would cost along with the basic pay, EPF, etc.

–        Gross Salary: The gross salary is that which includes overtime pay, bonuses, etc. It does not include EPF amount or Gratuity as these form part of the CTC.

–        Net Pay: When income tax, professional tax as well as PPF amounts are also deducted from the employee’s salary, whatever amount is left forms the Net pay. Thus, net salary or net pay is quite closely related to gross pay, but in most cases, it is slightly lower than the gross salary. It includes certain benefits like Dearness Allowance, House Renters Allowance, Bonus, etc. All of these variable benefits may vary from one business to another.

Net Pay Meaning

In simple terms, net pay means the amount of money that is credited to an employee’s account every month. It applies to full-time employees and not to part-time workers, freelancers, contractors, or any other employee who does not have a fixed contract with the company. For example, freelancers may be paid on the basis of how much work they get done. Temporary employees are often also not entitled to other benefits from the company, and as such, their incomes are not calculated on this basis.