Gross Pay vs. Net Pay: Definitions and Examples

Confused by your payslip? Let us demystify gross pay and net pay for you. Get a clear picture of your earnings, deductions, and take-home pay

Jul 4, 2023 - 13:34
Dec 23, 2023 - 13:29
Gross Pay vs. Net Pay: Definitions and Examples

You receive a payslip with numerous figures every payday, but do you truly comprehend what they represent? Your paycheck is a treasure trove of information, providing insights into your earnings and deductions. Two important figures on your payslip are your gross pay and net pay. Both numbers are important but for different reasons. But what's the distinction between them, and why does it matter? This article aims to demystify these terms, explain the difference, and provide practical examples.

NOTE: In the article, we have used 1 United States Dollar equals 140.75 Kenyan Shilling as of the time of writing

What is Gross Pay?

Gross pay, also known as gross wages, refers to the total amount of money an employee earns before any deductions, such as taxes and other payroll deductions, are subtracted. It's the initial figure that your employer includes in your employment contract. For instance, if your employer offers to pay you an annual salary of KSh 8,475,000 (roughly USD 60,000), you will earn KSh 8,475,000 in gross pay.

Gross pay can take two forms – a fixed set salary or an accumulation of your hourly wage rate multiplied by the number of working hours. For instance, if your employer agrees to pay you KSh 2,815 per hour (equivalent to USD 20), and you work 40 hours a week, your gross pay will sum up to KSh 112,600.

Even though your gross pay does not reflect entirely in your bank account, it is beneficial to understand its meaning, as the deductions from your gross pay depend on your location and your company's policies. Common deductions include taxes, insurance contributions, pension or retirement plan contributions, bonus payments, and student loan payments.

What is Net Pay?

Contrary to gross pay, net pay is the money an employee receives in their bank account after all deductions, including taxes, insurance contributions, and other mandatory and voluntary deductions, have been subtracted. However, there are circumstances when net pay may equal gross pay - typically when the income tax is negligible or the employee's salary falls below the taxation bracket set by the government.

Net pay is crucial as it guides your financial decisions and lifestyle. It's always advisable to keep an eye on your net income and inform your employer if any new developments could exempt you from certain deductions.

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Crunching the Numbers: How to Calculate Gross Pay and Net Pay

Now that we've explored the definitions, let's dig into how to calculate your gross pay and net pay.

Calculating Gross Pay

If you are a salaried employee, your gross pay is your annual salary divided by the stipulated pay periods. For example, if your annual salary is KSh 11,820,000 (equivalent to USD 84,000), and you're paid monthly, your monthly gross pay is KSh 985,000.

For those paid hourly, you can calculate your gross pay by multiplying the agreed hourly rate by the total number of hours worked in a week or month. For instance, if you're paid KSh 3,530 per hour (equivalent to USD 25) and work 40 hours a week, your gross pay will be KSh 141,200.

Calculating Net Pay

To compute your net income, you must account for all mandatory and voluntary deductions and subtract these from your gross pay. The mandatory deductions will depend on your country of employment and include income tax, retirement plan payments, healthcare premiums, and social security contributions.

Gross Pay vs. Net Pay: Spotting the Differences

Though interconnected, gross pay and net pay are distinct:

  • Gross pay is always higher than net pay.
  • Gross pay accounts for all benefits paid by the employer to the employee, such as bonuses, overtime, and allowances. On the other hand, net pay is the amount left after all deductions are made from the gross pay.
  • Gross pay is the starting point for calculations of deductions. Tax brackets, for instance, are usually based on gross income levels.

The discrepancy between gross and net pay can be large or small, depending on the employee's deductions. This can include the rate of taxation, the level of benefits contributions, and any other deductions the employee has.

Understanding Your Kenyan Payslip

In Kenya, a payslip usually contains a detailed gross and net pay breakdown, including the specific deductions subtracted from the gross pay.

Typical deductions on a Kenyan payslip include Pay As You Earn (PAYE) income tax, National Social Security Fund (NSSF), National Hospital Insurance Fund (NHIF), and deductions for any SACCO (Savings and Credit Cooperative Organization) or other loans that the employee may have.

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Understanding the difference between gross and net pay and how these figures are calculated is essential for financial literacy. It empowers employees to understand better their salary, taxation, and overall financial situation. Knowing your net pay allows you to plan your budget and manage your expenses wisely while understanding your gross pay gives insight into your earnings before deductions, which is critical in making decisions such as applying for loans or credit.

Whether you're an employee or an employer, knowledge of gross pay and net pay can provide a clear picture of how income and deductions work, ultimately aiding in better financial decision-making. It also makes understanding your payslip less daunting, giving you the confidence to question any irregularities and ensuring you're informed about your earnings.


1. How is gross pay different from basic salary?

Gross pay includes the basic salary plus other earnings such as overtime, bonuses, and allowances. On the other hand, the basic salary is a fixed part of an employee's compensation and does not include bonuses, overtime pay, or other types of compensation.

2. How can I increase my net pay?

You can increase your net pay by reducing the number of deductions. This could be through tax exemptions, investing in tax-free retirement plans, or reducing voluntary contributions such as loan repayments or other deductions.

3. Is my take-home pay the same as my net pay?

Yes, take-home pay and net pay are essentially the same. Both refer to the amount of money an employee receives after all deductions, such as taxes and other contributions, have been subtracted from their gross pay.

4. Why is my net pay lower than the gross pay mentioned in my contract?

Net pay is always lower than gross pay because it is calculated after deducting taxes, insurance contributions, pension or retirement plan contributions, and possibly other deductions from your gross pay.

5. Can my employer deduct money from my gross pay without my consent?

Mandatory deductions like taxes, social security, and health insurance are typically made without explicit consent, as they are legally required. However, for voluntary deductions such as union dues or repayment of personal loans, employers generally need your agreement.

6. How can I calculate my net pay if my monthly salary and deductions are not constant?

In such a case, you must calculate your monthly net pay based on your gross pay and the specific monthly deductions. This can be done manually or using an online calculator or payroll software.


This article is provided for informational purposes only and is not intended to replace professional financial advice. The information contained herein is based on the laws and regulations applicable as of the publication date and is subject to change. Consult a financial advisor or tax professional for personalized advice regarding your payslip and understanding your gross pay versus net pay.

Joseph Richard Joseph Richard, a leading contributor to, uses his decade-long expertise in finance, business, and technology to offer clear, reliable guides and analyses. His work aids Kenyans in making informed financial and business decisions, earning him a reputation as a trusted industry authority.