Gross vs net pay: what your salary actually means

Gross pay is the headline before deductions. Net pay is what remains after payroll deductions — but the path between them matters.

Updated 28 July 2026UK examples6-minute read

The short answer

Gross pay is earnings before deductions. Net pay, often called take-home pay, is the cash left after deductions made through payroll. A job advert usually quotes gross annual salary; your bank receives net pay.

Gross salaryThe contractual salary before Income Tax, National Insurance, pension, loans and other payroll deductions.

Taxable payThe amount payroll treats as taxable after eligible pre-tax adjustments. It is not always identical to gross salary.

Net payCash paid after the deductions shown on that payslip. It can change from one period to another.

Total packageSalary plus items such as employer pension contributions, insurance, equity and paid leave. It is not take-home cash.

How gross pay becomes net pay in the UK

Payroll starts with pay due for the period, including taxable overtime or bonus.
Eligible salary sacrifice or net-pay pension treatment may change taxable pay.
PAYE Income Tax is calculated using your tax code and year-to-date position.
Employee National Insurance is calculated using NI-able pay and pay-period thresholds.
Student loans, postgraduate loans, pension and other authorised deductions are applied.
The balance becomes net pay.

Not every deduction behaves the same way. A salary-sacrifice pension usually reduces contractual cash pay before Income Tax and National Insurance in the supported scenario. A net-pay pension reduces taxable pay but not National Insurance pay. A relief-at-source scheme generally deducts contributions from net pay and the provider adds basic-rate tax relief. Scheme rules decide the real treatment.

A worked example

Imagine a £45,000 annual salary with monthly pay, a standard Personal Allowance, no pension and no student loan. The annual gross amount is £45,000. Income Tax and category A employee National Insurance are estimated under 2026/27 rules; the remainder is annual net pay, and dividing that estimate by 12 gives an average month.

Why “average” matters: an annual estimate divided by 12 is useful for planning, but an actual monthly PAYE calculation can reflect tax code changes, earlier pay, bonuses and payroll rounding.

Gross pay terms that are easy to confuse

Basic salary versus gross pay

Basic salary excludes extras such as overtime, commission and some bonuses. Gross pay for a period can include them. When an offer says “up to” a larger amount, ask which parts are guaranteed.

Net pay versus disposable income

Net pay stops at the bank deposit. Disposable income normally means what remains after household costs, and definitions vary. Rent, mortgage payments, travel and groceries are not payroll deductions.

Annual salary versus total compensation

Total compensation can include uncertain or illiquid items. Quote cash salary, recurring cash bonus, employer pension and equity separately rather than collapsing them into one impressive number.

How to compare salaries properly

Use the same period and currency for both figures.
Separate guaranteed pay from target or discretionary bonus.
Compare expected hours and unpaid overtime.
Price recurring commuting and professional costs.
Compare employer pension and paid leave separately.
Use a tax calculator tied to the correct country and tax year.

Try the UK take-home calculator, or use the job offer comparison for gross package differences.