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Gross vs. net pay – how do they differ and what influences them?

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.

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Chapters of the article

What is gross wages?

Gross wages(sometimes referred to as “gross wages”) refers to the remuneration for an employee’s work before taxes and other deductions. It 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 the super gross wage was abolished and replaced by the gross wage, which is now also used to calculate the amount of income tax and social security and health insurance contributions.

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Net pay

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 will apply to monthly income above four times the average wage.

National Insurance 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.

Tip: We have discussed which benefits are beneficial for employees and employers and what the employer can deduct from the wages in our article

In addition to the gross salary, the employer calculates additional, slightly higher, contributions:
social security contributions paid by the employer, which amount to 24.8% of the assessment base, and health insurance contributions paid by the employer, which amount to 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.

A number of calculators for calculating net pay can be found on the internet. They give you an indication of your net pay, which is useful to know, for example, when you are negotiating with your employer about your salary or when 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 versus wages

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:

  • grade – classification according to the nature of the work performed; and
  • the grade – classification according to length of experience.

The individual grades and steps are defined in more detail in the Government Regulation or its annexes.

TheLabour 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.

Forms of pay

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:

  • task pay – e.g. pay for standard hours or pay for the completion of a specific task
  • time wage – typically a monthly wage, but hourly wages are also common, or wages set for an otherwise long period
  • share pay – this is determined, for example, by a share of profit or turnover.

Entitlement and non-entitlement part of wages

Within a specific worker’s wage, we distinguish between:

  • theentitlement part of the wage, to which the right has arisen under the employment contract, internal regulations and the wage (salary) assessment,
  • the non-entitlement part of the wage, which consists of:
    bonuses – not part of the salary assessment. They are awarded, for example, for the completion of an extraordinary task or within a certain period of time (Christmas bonus).
    profit share – a special type of bonus paid on the basis of the employer’s profit,
    – overtime pay, holiday pay, weekend pay, night pay, extra pay for working in a difficult working environment, on-call pay, or leadership pay.

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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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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