What is gross pay?
Gross pay is the total amount an employee earns in a pay period before income tax, National Insurance, pension contributions or any other deductions are taken off.
What gross pay means
Gross pay is the top figure on a payslip. It includes basic salary or wages plus anything else earned in the period: overtime, bonuses, commission, holiday pay, and statutory payments such as sick or maternity pay. Taxable benefits in kind that are payrolled are added for tax purposes too, although no cash is paid for them.
Deductions are then taken to reach net pay, the amount that reaches the bank account.
Example
An employee on £36,000 a year works some overtime in March:
| Payslip line | Amount |
|---|---|
| Basic salary (£36,000 ÷ 12) | £3,000.00 |
| Overtime, 10 hours at £25 | £250.00 |
| Gross pay | £3,250.00 |
| Income tax | (£440.50) |
| Employee National Insurance | (£176.20) |
| Net pay before pension | £2,633.30 |
Tax is 20% of £3,250 less the £1,047.50 monthly allowance; NI is 8% of the same. A workplace pension contribution would usually be deducted too, and student loan repayments if the employee has one.
Why it matters for your business
Job offers, contracts and the National Minimum Wage are all expressed in gross terms. Employer costs are based on gross pay too: employer National Insurance at 15% above £5,000 a year and auto-enrolment pension contributions come on top, so the real cost of a £36,000 employee is nearer £41,500 before other benefits.
Mortgage lenders usually ask for gross income. If you are self-employed, the closest equivalent is your profit before tax, not your turnover.
Gross pay and salary sacrifice
Under salary sacrifice, contractual gross pay is reduced, which lowers tax and NI. A pension contribution under a net pay arrangement is deducted from gross pay before tax but does not reduce gross pay for National Insurance.
The full cost to an employer
For an employee on £36,000, employer National Insurance is 15% of £31,000, which is £4,650, and the minimum 3% employer pension contribution on qualifying earnings adds about £890. The real cost is therefore around £41,500 a year before holiday cover, equipment or other benefits. Use the employer NI calculator to work it out for your own team.
Gross pay figures also drive auto-enrolment, statutory sick pay eligibility and the National Minimum Wage checks, so they need to be right on every payslip.
Common questions
Gross pay is what you earn before deductions. Net pay is what you receive after income tax, National Insurance, pension contributions, student loan repayments and any other deductions. Payslips show both. Your P60 shows the year's total gross pay and tax.
Salaries in UK job adverts and contracts are almost always quoted gross, before tax. Your take-home will be lower. A take-home pay calculator shows the net figure for any salary. Check your contract if you are unsure, and remember that overtime and bonuses are also quoted gross.