Income: a flow of money to a factor of production e.g. wages for workers, benefit payments, dividends and profits for owners, rental income and interest on investments.
Gross Pay: the total pay a person earns including bonuses and overtime before deductions are made.
Net Pay: the pay a person earns after deductions are made for things like taxes, national insurance, pension contributions and union dues. This is sometimes referred to as take home pay.
Calculating Gross & Net Pay
Gross pay is made up of a persons basic pay including bonuses and overtime pay.
A person earning £2000 basic pay plus £200 in overtime pay in a month has gross pay of £2000 + £200 or £2200.
Net pay is after deductions are made from gross pay. Let's assume our employee pays £400 tax, £200 national insurance, and pension contributions of £100.
So net pay = gross pay - deductions = £2200 - (£400 + £200 + £100) = £2200 - £700 = £1500.
Click the button below to generate a question to practice calculating gross and net pay