Net pay is the take-home pay an employee receives after you withhold payroll deductions.
Payroll deductions are amounts you withhold from an employee’s paycheck each pay period. There are both mandatory and voluntary deductions.
Mandatory deductions than one must withhold include Social Security, Medicare, and federal income taxes just to name a few.
Some of the voluntary deductions include life insurance, retirement plans, flexible spending accounts, and health savings accounts e.t.c.
Formula to calculate net pay.
Gross pay is the amount of money you receive from your employer before any deductions or taxes have been taken out.
Example:
Monthly, an employee makes a gross pay of about $2,000. Her monthly deductions amount to $700. Determine her monthly net pay.
Therefore, the employee’s net pay is $1,300.
