What is Gross Salary? A Brief Overview of Gross Salary
In today's business world, organizations often use two methods to calculate employee salaries: gross salary and net salary. Understanding these concepts is essential in effective salary management. However, not everyone comprehends the nuances of gross salary and how it differs from net salary. In this article, Aniday aims to provide clear insights into the subject.
What is Gross Salary?
So, what is the gross salary? Gross salary refers to the total compensation an employer pays to an employee before making deductions for taxes and other withholdings. It encompasses various components:
- Basic Salary: This is the predetermined amount agreed upon in the employment contract, typically calculated per hour, day, week, or month.
- Allowances: Additional payments to employees based on factors such as working conditions, experience, qualifications, or job performance.
For examples: professional allowances, travel allowances, meal allowances, seniority bonuses, and area-specific allowances.
- Bonuses: Monetary rewards provided to employees based on performance, results achieved, or specific goals met. Common examples include sales bonuses, project-based bonuses, and holiday bonuses.
Distinguishing Gross Salary from Net Salary
In addition to grasping the definition of gross salary, understanding the distinction between gross salary and net salary is crucial. Workers should acquaint themselves with several key aspects:
Definition
Apart from learning about gross salary, it's essential to comprehend the concept of net salary (also known as actual or after-tax salary). Net salary represents the income an employee receives after the deduction of taxes and other withholdings. Net salary is calculated by subtracting the following components from the gross salary:
- Personal Income Tax (PIT): This tax, based on income levels, is paid by employees to the state and follows a tax table defined by the Personal Income Tax Law.
- Social Insurance Contributions: Employers and employees both contribute to the social insurance fund, covering benefits in case of incidents. Social insurance encompasses health insurance, labor accident and occupational disease insurance, unemployment insurance, and pension and death insurance (HTT).
- Other Deductions: These involve amounts deducted from employees' salaries for various services or products provided by the employer, such as meal allowances, phone expenses, and uniform costs.
Regulations on Types of Insurance and Taxes
Vietnamese law mandates that employers pay social insurance, health insurance, and unemployment insurance on behalf of their employees.
The total insurance premium amounts to 32.5% of the gross salary, with employers contributing 17.5% and employees 10.5%. Additionally, employers must remit personal income tax (PIT) on behalf of employees at rates ranging from 5% to 35%, depending on their income levels.
Strengths of Gross Salary and Net Salary
Gross Salary offers the advantage of ensuring that employees receive social insurance, health insurance, and unemployment insurance benefits. These insurance types provide crucial support to employees in times of health difficulties or job transitions. Gross salary also simplifies the process of securing loans from banks, as it is based on the total income.
Net Salary provides employees with a clear, realistic income to manage each month. It alleviates concerns related to deductions from the gross salary, allowing employees to focus on the amount they have available. Furthermore, net salary facilitates easy salary comparisons between different employers.
Weaknesses of Gross Salary and Net Salary
Gross Salary may lead to confusion for employees, as the actual amount they receive is less than the initially stated figure due to insurance and tax deductions. These deductions occur without employees' direct involvement or full transparency. Calculating the actual income can also be challenging.
Net Salary does not guarantee insurance benefits, leaving employees responsible for health-related expenses and providing for periods of leave or job loss. Additionally, it may pose difficulties when attempting to secure bank loans, as it does not reflect total income comprehensively.
Subjects of Labor Utilizing Each Method
Gross Salary is typically employed for high-earning individuals who require bank loans and wish to access social insurance, health insurance, and unemployment insurance benefits.
Net Salary is often offered to lower-income workers who do not require bank loans and are less concerned with insurance.
Formulas for Calculating Gross Salary from Net Salary and Vice Versa
After understanding the concept of gross salary and distinguishing it from net salary, it is essential to know how to calculate gross salary from net salary and vice versa. Here are the formulas:
|
Gross salary |
Net salary |
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Recipe |
= Net salary + (Net salary x 10.5%) + (Net salary x 17.5%) + (Net salary x Personal Income Tax) |
= Basic salary + Allowances + Other income - Personal income - Social insurance - Health insurance - Unemployment insurance - Other deductions |
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Include |
- Net salary: actual amount received after deducting insurance and taxes. - Net salary x 10.5%: social insurance, health insurance and unemployment insurance paid by employees. - Net salary x 17.5%: housing, social insurance, health insurance and unemployment insurance for employees paid by the company - Net salary x Personal income tax: personal income tax for employees paid by the company. |
- Basic salary - Allowance - Other income - Personal income tax - Social insurance (8% of basic salary) - Health insurance (1.5% of basic salary) - UI(1% of basic salary) |
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For example |
If an employee has a net salary of 10 million VND and personal income tax is 10%, the employee's gross salary is: Gross salary = 10 million + (10 million x 10.5%) + (10 million x 17.5%) + (10 million x 10%) Gross salary = 15.05 million VND |
An employee has a basic salary of 10 million VND, allowances of 2 million VND and other income of 1 million VND. This employee's net salary will be calculated as follows: Net salary = 10 + 2 + 1 - (0.15 + 0.8 + 0.15 + 0.1) = 11.8 million VND |
Should You Opt for Gross Salary or Net Salary in Your Employment?
Some workers may find it challenging to decide between gross salary and net salary. Net salary is the amount received after deductions, while gross salary represents the total income before deductions. Whether you opt for gross or net salary may depend on your employer's practices.
If your employer adheres to legal requirements and pays salaries along with all necessary deductions in line with your salary level, your choice of gross or net salary should not significantly impact your benefits. This ensures that you do not lose out on benefits such as social insurance coverage when facing circumstances like work-related accidents, retirement, or unemployment.
However, if your employer does not comply with the law and pays a net salary while declaring a lower salary to reduce costs, you risk losing out on benefits in case of labor accidents, retirement, or unemployment. Therefore, choosing a gross salary is a prudent option to safeguard your rights. In this scenario, you are responsible for calculating and remitting statutory insurance premiums and taxes, fostering a transparent and equitable relationship with your employer.
If your company offers both gross salary and net salary as options, you can refer to the definitions, calculations, and differences presented here to make an informed decision that best suits your circumstances. Understanding the average salary in Indonesia and the average salary in Vietnam can also provide valuable context to ensure your compensation packages are competitive and appropriate for each market.
In conclusion, Aniday hopes that this article has provided you enough information to know: what is gross salary, what is differentiation from net salary, and insights into calculating gross salary.
