Net pay

What it means

Net pay is what remains after social and health contributions and the income tax advance. Attachment of earnings and agreed deductions come off it as well.

The route from gross to net runs through employee contributions, the tax-free allowance and any child tax bonus. That is why two people on the same gross take home different amounts.

Monthly net pay is calculated from the tax advance, not from the final tax. The actual tax for the year is settled only in the annual reconciliation or the tax return. The sum of a year’s net pay can therefore differ from the final outcome by a refund or an amount due, especially if pay, employer or entitlement to allowances changed during the year.

How it works in practice

Employees negotiate net, while the company plans from total employer cost. At hiring it is worth working both ends at once so the deal does not shift after the first payslip.

Agreeing a fixed net amount is possible but risky: when rates, allowances or an attachment change, gross has to be recalculated and the company’s cost rises without anyone deciding it.

When someone joins we collect what net pay cannot be calculated correctly without: the employee tax declaration, details of children for the tax bonus, whether a pension is being drawn and any attachment orders in progress. If a document arrives late, payroll is recalculated retrospectively and the employee receives a top-up or a deduction in one go.

What to watch out for

Net pay changes without any change to the contract: a child bonus ends, an allowance shifts, an attachment starts. An employer who promised a figure in hand ends up in an argument it never created.

Someone working for two employers at the same time can claim the tax-free allowance and the child bonus with only one of them. If the declaration is signed with both, net pay is higher during the year, but after year end a tax arrears amount arises that must be paid in one go.