 # 7.06 Deductions and net pay

Lesson

The total income for an individual over a weekly, fortnightly or monthly pay period, is known as their gross pay. It could include any of the following forms of income:

• A wage or salary from employment
• Income support from a government allowance
• Bonuses
• Interest earned from financial institutions
• Income from a rental property

Net pay or 'take-home' pay is the amount an employee actually receives in their bank account at the end of each pay period. It is calculated by subtracting tax and other deductions from their gross pay.

$\text{Net pay }=\text{gross pay }-\text{tax }-\text{other deductions }$Net pay =gross pay tax other deductions

Each pay period, an employer must deduct tax instalments, known as Pay As You Go (PAYG), from their employee's pay, and send it to the Australian Taxation Office (ATO). The employee may also arrange for their employer to make additional deductions from their pay, such as:

• Voluntary superannuation contributions
• Union fees
• Loan repayments
• Salary-Sacrifice payments

Individuals who are self-employed, or work as contractors, must pay their own tax in regular instalments to the the ATO.

#### Worked example

Chris receives an annual salary of $\$78000$$78000 and is paid monthly. His employer deducts 22%22% of his gross pay in tax. Chris has also arranged for his employer to make the following deductions: • Personal superannuation contribution of 1.5%1.5% • Union fees of \48$$48

Calculate Chris's net monthly pay.

Solution:

First, we calculate Chris's gross monthly pay by dividing his salary by $12$12:

 Monthly pay $=$= $\frac{78000}{12}$7800012​ $=$= $\$6500$$6500 Tax is calculated as 22%22% of gross pay:  Tax == 22%22%\text{of }of 65006500 == 0.22\times65000.22×6500 == \1430$$1430

Chris's 'other deductions' include union fees of $\$48$$48 and a superannuation amount that is 1.5%1.5% of gross pay:  Other deductions == 4848 ++1.5%1.5% \text{of }of 65006500 == 48+\left(0.015\times6500\right)48+(0.015×6500) == 48+97.5048+97.50 == \145.50$$145.50

We can now calculate Chris's net monthly pay:

#### Question 3

A labourer is paid a gross annual salary of $\$31300$$31300. Each week he contributes 88% of his gross pay to a voluntary superannuation fund. His other weekly deductions are \103.50$$103.50 PAYG tax and $\$9.509.50 for union fees.

1. Calculate the total weekly deductions.

2. Calculate the net weekly income.