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Gross salary vs. net salary

August 2, 2022
3 minute read
woman looking at notes

Right now, a third of young people are struggling to make ends meet in the Netherlands. Without understanding how our money comes and goes, it's impossible to plan ahead. It doesn’t help that there’s often some confusion around how to calculate our pay. This is mostly because of gross vs. net salary. 

Hopefully, we can help you determine yours! Here’s how you can find the difference between your gross salary and net salary, regardless of how you are paid.

What is gross salary?

Gross salary is the total amount of income you receive from your employer before necessary or work-related deductions. To determine your gross salary, you’ll need to add up all of the following components:

  • Base salary
  • Bonus pay
  • Holiday leave
  • Travel allowance
  • Housing allowance
  • Superannuation
  • Commute or conveyor allowance
  • Other allowances or bonus pay

When you add all of this income, the sum is considered your gross salary. Essentially, you need to look at all of the money being spent by your employer to benefit you. However, if you spend large portions of this income on work-related expenses, it is no longer considered net pay.

What is net salary?

Your net salary is always going to be less than or equal to your gross salary. Your net income is defined by your gross salary minus income taxes, retirals, and deductions. For example, if you commute to work and it costs you your entire conveyor allowance, you will subtract that income from your gross salary.

The amount you are left with is your total take-home pay or net salary. Here’s an example of calculating your net salary (in the Netherlands). 

If you receive €20 per hour for 30 hours of work per week with no allowances or retirals, your gross salary would be €600 per week or €31,200 per year.

In that case, you’d pay a "Box 1" tax rate of 37.1%, which means you would have a take-home pay of €26,046. This is due to the labor tax credit, which results in a greater take home pay. However, there may still be necessary expenses associated with your work.

From there, you would subtract any necessary gross salary deductions such as commuting expenses. If you pay €5 each day to commute to and from work, then you can consider that a necessary deduction for around 260 working days a year. This would amount to €1,300, leaving your net salary at €18,324 per year or €352 per week.

However, many companies will cover your transportation costs, fully or partially. 

How to identify your net salary

If you earn a fixed salary at work, then you know how much you will be paid at the end of each pay period. Simply subtract deductions and income taxes from this total amount to determine your net salary. Otherwise, here is how to determine your net salary with different types of wages.

Hourly workers

Currently, the average salary in the Netherlands is €36,500, which is €23.39 per hour with a 30-hour work week. Doing this math is simple.

If you are an hourly worker, you will have to do the math to determine your annual salary. Simply look at your week's pay and multiply it by 52, with and without taxes withheld. This will tell you your gross and net salary.

Always remember to multiply your weekly earnings by 52 instead of your monthly earnings by 12. Otherwise, you will miss 4 weeks in the year. You can also multiply daily wages by 260 if you work 5 days a week consistently, even with paid holiday time. 

Income tax

For deductions, you’ll need to calculate income tax. Find out which box you fit into to determine your income tax rate. You’ll be Box 1 if your gross salary is under €35,129, which means you’ll owe a total tax rate of 37.10%.

The same rate will apply to Box 2 currently. If your salary is under €68,507, you will still owe 37.10% for income taxes. However, this may change in coming years, as these two boxes have not paid equal rates for long.

Box 3 is income above €68,507, which will be taxed at 49.5%. Regardless of your box, it’s important to account for these, especially if you’re an independent contractor or self-employed small business owner. Then, you will owe the amount based on these rates at the end of the fiscal year, rather than having the taxes withheld from your pay cheques.

Holiday pay

In the Netherlands, it’s important to add the amount of holiday pay you receive to your gross salary. Even if you are not working during this time, this pay is still included in your salary. It’s still income you are receiving as part of your employment arrangement.

Other deductions

If you were forced to spend money for work-related expenses, you can deduct these from your gross salary. Typically, you should receive an allowance or reimbursement from your employer for these expenses, but you can still deduct them either way. If you received compensation for these deductions, remember to account for the additional income before deducting.

Direct deposit

Almost all of us store our money in a bank account, which likely includes both chequing and savings accounts. If you receive your pay cheque through a direct deposit, ask your employer for pay stubs to determine your gross pay. Once you have a copy, add up all of the miscellaneous income and allowances and subtract the necessary deductions. 

Start creating a financial plan today

Now that you know how to determine your gross and net salary, you can create a financial plan that works for your income. The first step to any budget or financial plan is to understand your finances. 

If you’re looking for easy budgeting with no effort needed from your side (or math skills), check out bunq today. The app has plenty of features that will help save money in no time. You can also enjoy a 30-day free trial.

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