Gross Salary and Net Salary are the two most common forms of receiving compensation in today’s workforce. However, for newcomers to the job market, these concepts might be unfamiliar. In this article, we will consolidate valuable information to help you understand Gross Salary and Net Salary better, enabling you to make informed decisions when negotiating with employers.
What is Gross Salary?
Gross Salary, also known as “pre-tax salary,” is the total amount committed by employers to pay employees every month or year before deducting any taxes or withholdings. It encompasses not only the basic salary but also allowances, bonuses (if any), and contributions towards health insurance and personal income tax (PIT), as agreed upon in the employment contract. Those receiving Gross Salary need to manage deductions like taxes and social insurance on their own.
However, when receiving salary, employees must set aside an amount of money every month to pay social insurance and personal income tax (if any), so the actual amount received will be less than Gross salary.
For instance, if a company and an employee agree on a basic monthly salary of 20,000,000 VND, in the case of opting for Gross Salary, the employee will receive the agreed-upon amount of 20,000,000 VND but must independently allocate funds for insurance and PIT.
What is Net Salary?
Net Salary, also referred to as “post-tax salary,” is the amount an employee actually receives after subtracting PIT and mandatory deductions. It’s the sum seen in the bank account after deducting social insurance, health insurance, unemployment insurance, and PIT from the Gross Salary.
For example, if a company and an employee agree on a Net Salary arrangement, with a salary of 15,000,000 VND, the employee will receive exactly 15,000,000 VND each month without further deductions mentioned above. Instead, the company assumes responsibility for those deductions.
The calculation of Net Salary from Gross Salary can be understood as follows:
Net Salary = Gross Salary – (Social Insurance + Health Insurance + Unemployment Insurance) – PIT (if applicable)
See more: #Youmustknow: Salary computation and payment
Common Payroll deductions
Typical deductions from Gross Salary to calculate Net Salary may include:
– Personal Income Tax: Based on the applicable tax rates for each income bracket.
– Social Insurance Contributions: Encompassing social insurance (8%), health insurance (1.5%), unemployment insurance (1%), and labor insurance.
– Other deductions: Includes contributions to supplementary health insurance, separate retirement savings funds, payments to social support funds, etc.
See more: Fast and Convenient Gross-to-Net salary tool
Choosing Gross or Net Salary
When negotiating salary, the choice between Gross Salary and Net Salary depends not only on personal preference but also careful consideration of the salary level, deductions, and accompanying benefits.
Gross Salary might offer greater transparency, as it specifies the exact amount promised in the employment contract. If the remaining salary after deducting the insurance and PIT meet personal needs, this can be an optimal choice. Opting for Gross Salary also ensures entitlements based on the Gross Salary in urgent situations such as maternity leave, work-related accidents, unemployment, and other scenarios as defined by the law.
See more: Basic Salary and Minimum Wage: Differences and Their Important Role
Whether selecting Gross or Net Salary, employees should analyze carefully and calculate diligently to ensure that the received amount meets personal needs and avoids regrettable financial difficulties. A comprehensive grasp of these salary types will enable employees to negotiate confidently and make informed decisions in salary agreements with employers. We hope this article provides useful information and enhances your comprehension of Gross and Net Salary, aiding you in making suitable and confident decisions during your employment journey and interactions with employers.
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