The basic difference between gross and net wages is probably understood by most of us. But how do we calculate net pay accurately? Why can two employees with the same gross salary have different net income? And why do we sometimes talk about wages and sometimes about salaries? These questions are the focus of our article.
Gross wages (sometimes referred to as “gross wages”) refers to the remuneration for an employee’s work before taxes and other deductions. This is the amount agreed between the employer and employee during the initial interview and subsequently confirmed in the employment contract. It therefore includes the part that is paid for social security and health insurance.
It is important to distinguish the so-called super gross wage from the gross wage. This is a concept that was introduced in 2008 and represented the cost per worker that the employer had to incur each month. However, in 2021, super gross wages were abolished and since then only gross wages have been used, from which income tax and social and health insurance contributions are now calculated.
The change brought about by the abolition of the super gross wage has significantly simplified the calculation of the net wage. As a result, taxes are no longer calculated on the higher amount (super gross pay) but directly on gross pay. This means that employees now have more certainty about the amount that lands in their account each month.
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We calculate net pay from the gross wage, deducting the employee’s health and social insurance and the advance personal income tax on the employee’s employment and adding tax benefits or, for example, sick pay.
Income tax is therefore calculated directly on gross wages, not on super-gross wages. The income tax rates are 15% and 23%. The higher 23% tax rate applies to monthly income above four times the average wage.
Social security and health insurance contributions are amounts paid each month by both you and your employer. In the case of an employee, the resulting total is 11%. Of this, 6.5% is social security, which is paid to the Social Security Agency. It is rounded up to the nearest whole crown. Health insurance premiums amount to 4,5 % of the assessment base and are paid to the relevant health insurer.
If you want to be sure how much you will take in hand, the net pay calculator will help you. You can find various tools online that allow you to calculate your net pay, simply by entering your gross salary and any tax credits you may be entitled to.
Tip: We have discussed which benefits are beneficial for employees and employers and what the employer can deduct from the wages in our article
Calculating net pay is a process that involves deducting health and social security contributions and adding any benefits. To find out your exact income, you can use an online tool such as a salary calculator to help you determine how much you would take in gross pay if you know your net pay.
On top of your gross pay, your employer calculates additional, slightly higher, levies:
employer-paid social security contributions, which are 24.8% of the assessment base, and employer-paid health insurance contributions , which are 9% of the assessment base.
Net pay can be positively affected by the addition of tax benefits (e.g. child benefit), which can also result in two employees with the same gross pay ending up with different net incomes if, for example, one of them claims the allowance for four dependent children and the other does not.
The addition of sick pay, the tax credit for a disabled person’s disability card, or, for example, studying for a course of study for those under 26 years of age, have a further effect on the amount of pay.
On the other hand, various travel allowances are not considered part of the wage.
As we mentioned, there are a number of calculators available on the internet to calculate net pay. They give you an indication of your net pay, which is useful to know, for example, if you are negotiating with your employer about your salary or if you want to know how much of your salary you are losing each month. Of course, your net pay may change from month to month, e.g. due to illness etc.
Salary is paid to employees of the state, municipalities or contributory organisations, while wages are paid to employees of private employers. However, these terms are often confused in common parlance, and it is common to see someone informing us of their ‘salary increase’, even though they work in the private sector.
The specific salary level is determined by the employee’s classification in the salary scale, which is made up of a combination of:
The individual grades and steps are defined in more detail in the Government Regulation or its annexes.
The Labour Code stipulates that wages are paid according to the complexity, responsibility and exertion of the work, the difficulty of the working conditions, and the performance and results achieved. It also stipulates that all employees of the employer are entitled to the same remuneration for work of equal value.
Wages may be paid on completion of a task, after a certain period of time, or as a percentage of earnings. Thus, we distinguish between:
What pay settings are worthwhile and what types of pay are there? Find out in the next article.
Within a specific worker’s wage, we distinguish between:
The gross wage is the amount agreed between the employer and the employee, which includes health (4.5%) and social security (6.5%) contributions and advance income tax. The net wage is calculated by deducting these contributions and adding any tax benefits, such as child benefit. The income tax rates are 15% and 23%. Wages and salary are not the same thing – wages are paid in the private sector, while salaries are paid in the public sector according to pay scales. You can use online calculators to work out your net income as a guide.
Tip: If you are interested in what you are entitled to as an employee, what are the legal obligations regarding remuneration and which benefits are beneficial for employees and employers, read the related article.
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