Net pay is an employee’s earnings after all deductions are taken out. Obligatory deductions such as the FICA mandated Social Security tax and Medicare are withheld automatically from an employee’s earnings. Other deductions come in the form of benefits, which may be optional. Health, dental and vision insurance, life insurance, or a retirement fund may be offered through an employer. These costs will come in the form of a deduction from the employee’s gross pay, or salary.
How to calculate net pay:
Net Pay = Gross Pay – Taxes and Deductions
For employers, what does net pay mean? A broader net pay definition includes implications for the employer, such as the obligation to match an employee’s retirement or savings fund.