Net pay is the amount of money a company issues to an employee after deductions and withholdings are subtracted.

Net pay is commonly referred to as net income or take-home pay. It is the sum leftover from an employee’s total wages after the employer has taken a portion to cover income taxes and contributions for the employee. 

There are a number of deductions an employer must be aware of, especially when hiring a global workforce. Some deductions are mandatory, which means that employers are legally required to withhold this money from an employee’s paycheck. 

Mandatory deductions include the following:

• Taxes: Taxes are involuntary deductions. Rates and deductions are based on each government’s taxation model. An employer deducts tax from an employee’s total pay depending on the country’s tax rate. The tax deduction is a percentage of the employee’s income. This also includes social security contributions that go towards insurance, healthcare, and pension.
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• Court-ordered wage garnishment: This often refers to when an employee has to pay child support or repay debt. 
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While there are mandatory deductions, there are also voluntary deductions. These include:

• Retirement contributions: Additional retirement contributions are voluntary. The amount is agreed upon by both the employer and employee. The employee chooses a percentage of their gross pay to go towards pension and retirement.
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• Insurance: Employers often choose to offer private health insurance with their employee’s benefits package. With this, the employer deducts a percentage of the health insurance premium from the employee’s total pay. The amount depends on the company and the insurance policy. 
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• Charitable contributions: Employees may choose to deduct money from their gross salary to go towards charitable causes.
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• Union dues: Employees may choose to have voluntary deductions so they can remain a union member.
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It’s essential to calculate net pay accurately. It can be done using the following formula:

• Net pay = Gross Pay – Taxes and Deductions
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