Definition: Net pay, also referred to as take home pay, equals an employee’s total pay less all deductions. Net pay is the amount of wages that employees actually take home. In other words, net pay is the amount of money on each employee paycheck.
What Does Net Pay Mean?
Employers deduct many different amounts from employee wages every pay period. Some deductions like FICA, Federal income, and State income taxes are required by law; whereas, retirement contributions, pension plans, health insurance coverage, and other employee benefit deductions are opted into by the employee.
Employers typically issue employee earnings reports to each employ that lists the gross pay and deducts for the period. The net pay is usually listed at the bottom of each employee earnings report.
Net pay is often called take home pay because this is the amount of money employees actually receive from the company. Take home pay is an important concept for any individual looking for a new job. For instance, company number 1 may be offering a higher starting salary but aren’t willing to pay 100 percent of health care costs and are located in a state with a 5 percent income tax. Company number 2 might offer a lower starting salary, but it will pay for 100 percent of employee health insurance and is located in a state with no state income tax.
Often times, the take home pay from company number 2 is actually higher than company number 1 even though the salary is lower.