Gross Vs Net Salary Meaning

When you get your first job offer, one of the first things you’ll notice on the offer letter is the salary. But here’s where many people get confused: is that number your gross salary or your net salary? Understanding the difference between the two is crucial because the amount you see in your bank account (net salary) is usually lower than the amount mentioned in your offer letter (gross salary).

Gross vs Net Salary: Key Differences

Here’s a side-by-side comparison:

What Is Gross Salary?

Gross salary is the total amount your employer agrees to pay you before any mandatory deductions. This is the figure stated in your job offer, employment contract, or company announcement about your monthly compensation.

It usually includes:

• Basic monthly pay

• Allowances (transportation, meal, or housing)

• Bonuses and incentives

• Overtime pay (if applicable)

Example: If your job contract says your monthly salary is ₱30,000, this is your gross salary.

What Is Net Salary?

Net salary, often called take-home pay, is the actual amount deposited into your bank account after all mandatory deductions.

These deductions usually include:

• Income tax (withholding tax under TRAIN law)

• SSS contribution

• PhilHealth contribution

• Pag-IBIG contribution

• Other company-specific deductions (e.g., loans, cash advances, tardiness penalties)

Example: If your gross salary is ₱30,000 and your total deductions are ₱5,000, then your net salary is ₱25,000.

Mandatory Deductions in the Philippines

To fully understand the net salary calculation, let’s go through the standard deductions every employee in the Philippines faces.

1. Income Tax (Withholding Tax)

• Based on the TRAIN Law (Tax Reform for Acceleration and Inclusion).

• Applies depending on your annual taxable income.

• The higher your income bracket, the higher the percentage of tax.

Example:
If you earn ₱30,000 monthly (₱360,000 yearly), you fall under the 20% tax bracket (after exemption threshold).

2. SSS Contribution

• Covers retirement, sickness, maternity, and other benefits.

• Contribution rates are shared between employer and employee.

• As of 2025, employee share is about 4.5% of MSC (Monthly Salary Credit).

3. PhilHealth Contribution

• Covers health insurance and hospitalization benefits.

• Employee and employer share equally.

• Current rate is 5% of salary, with an income ceiling.

4. Pag-IBIG Contribution

• A government savings and housing program.

• Employee contribution is typically ₱100 monthly, unless voluntary contributions are higher.

Why It’s Important to Know the Difference

Understanding gross vs net salary in the Philippines helps you:

• Plan your budget accurately based on your take-home pay.

• Avoid surprises when you receive your payslip.

• Negotiate salary effectively during job offers (you’ll know to ask about net pay).

• Check for errors in payroll or deductions.

Common Misconceptions

1. “My gross salary is what I’ll get every payday.”
   False. Your net salary is what you actually receive.

2. “All deductions are optional.”
   Wrong. SSS, PhilHealth, Pag-IBIG, and tax are mandatory by law.

3. “Allowances are not taxed.”
   Some are taxable, depending on the type and amount (e.g., large meal allowances).

Tips for Employees in the Philippines

• Always check your payslip for correct computation.

• Ask your HR for a salary breakdown before signing a contract.

• When comparing job offers, focus on net pay, not just gross salary.

• Take advantage of Pag-IBIG savings and loans as they provide real benefits.

• Consider voluntary savings on top of contributions for long-term financial security.

Frequently Asked Questions

The difference between gross vs net salary in the Philippines is crucial for every employee to understand. Your gross salary may look attractive, but your net salary (take-home pay) is what truly matters for budgeting and daily expenses.

Before accepting a job offer, always clarify with HR whether the quoted figure is gross or net, and make sure you know the exact deductions applied. This way, you can plan better, avoid confusion, and make informed career decisions.