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What is Net Pay?

Net pay is your hourly, weekly, monthly and annual earning after regular deductions from your gross pay. Typically this amount is lower than the gross pay. Net pay is the amount received by an employee in the bank account or as a cheque and is commonly reffered to as your 'take home pay' as Net Pay is the money you take home after taxes and deductions.

Net Pay in Detail

There are various line items deducted from gross pay. These include items such as federal and provincial income taxes, RRSP contributions, CPP and EI premiums, union dues, etc. Additionally, there may be deductions for employer benefits, such as healthcare, special insurance, disability, company savings plan, etc. The amount left after all these deductions called as net pay or take-home pay. Net pay also reduces by other voluntary components, such as repayment of loans taken from employers, group life insurance, payment towards computer purchases, etc.

Example of Net Pay

Let's take an IT manager living in Ontario with an average annual salary of $70,000. On this income, there will be a federal tax deduction of $10,652, and an Ontario tax of around $4,271. So the IT manager's net pay will be $55,075.

Suppose the IT manager is making an RRSP contribution of $5000. In this case, his net pay will come down to $46,633 (taking into account the tax benefits of RRSP contribution). If he is getting any tax credits of say $1,000, this amount will be deducted, and it will increase the net pay.

Useful tip

Net pay is the actual amount available for expenditure. It is always good to use the net pay figure for setting household budgets.

How does Net Pay affect the tax?

Net pay is what you get in hand after all tax deductions. To calculate your net pay after deducting tax, use the net pay calculator (select Advanced Tax Calculator Options).

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