Understanding your paycheck can take some time. Use this free lesson to better understand your pay and work benefits.
When you were hired, you agreed to be paid an annual salary or an hourly rate. This amount of money is called gross pay. Gross pay is the amount of money you make before certain deductions are taken out of your paycheck. Although it varies by employer, most employees receive their paychecks monthly, bi-weekly, or weekly.
Nick earns an annual salary of $36,400. Because Nick is paid weekly, his gross pay per paycheck is $700. However, this figure doesn't represent Nick's actual take-home pay. Why?
Nick doesn't take home $700 per week because of the deductions taken out of his paycheck.
A deduction is money that is taken out of your paycheck for employee benefits, such as insurance, retirement and other preauthorized plans, and taxes.
Net pay is the amount of money you take home after deductions are made. Deductions cause you to take home only about 70 to 80 percent of your gross pay.