Gross income is everything earned before deductions. Net pay is what is left after them. Cost to company is a third number again, higher than both, because it includes what the employer pays on top of salary. Confusing the three is the most common source of disputes over offers, particularly across borders.
Here is what each includes, what falls outside gross income entirely, and why the gap between gross and net differs so much by country. Last updated September 2026.
| Includes | Excludes | |
|---|---|---|
| Cost to company | Gross pay plus employer contributions and benefits | Nothing the employer pays |
| Gross income | Salary, bonuses, commission, allowances, other income | Employer contributions |
| Net pay | What reaches the bank account | Tax, social contributions, pension, other deductions |
The total earned before any deductions are applied.
For an employee that usually means basic salary plus anything added to it: bonuses, commission, overtime, and allowances such as housing or travel where those apply.
In a wider tax sense, gross income also covers earnings from outside employment: investment returns, dividends, rental income, business or freelance profits, pensions, and certain benefits.
Add the components together.
Gross pay = basic salary + allowances + bonuses + commission + overtime
For example, a basic salary of 32,000 with allowances of 1,500, 1,200 and 900 gives gross pay of 35,600.
Which components exist depends entirely on the country. Housing and travel allowances are standard in some markets and unknown in others, and some are treated differently for tax than for employment law.
Three things people commonly assume are, and are not.
Tax refunds. Returning money you overpaid is not new income.
Gifts. Money or property received as a genuine gift is generally outside income, though thresholds and rules vary and large gifts may have their own tax treatment.
Loan proceeds. Borrowed money is not income, because it has to be repaid.
Employer contributions are also outside gross income. They are paid by the employer on top of your salary and never appear in it.
Net pay = gross pay − deductions
Deductions typically include income tax, social security or national insurance, pension contributions, and any voluntary items such as health insurance.
Note what this formula does not do: it does not subtract the components that make up gross pay. Subtracting allowances from gross pay returns you to basic salary, which is a different figure entirely and a common source of confusion.
The mechanics are covered in more detail in what is net pay.
Cost to company is what the employer actually spends. It includes gross pay plus employer social security and pension contributions, statutory insurance, mandatory bonuses and the cost of benefits.
Treating CTC as gross pay overstates what the employee will receive, sometimes substantially. In markets where the term is used routinely, candidates are often quoted a CTC figure and then surprised by the net amount.
For an employer budgeting an international hire, CTC is the number that matters, and it is the one most often underestimated. Our employment cost calculator covers it by country.
Because the deductions do, and the differences are large.
Income tax rates and thresholds differ everywhere. Social contribution rates range from modest to substantial. Pension enrolment is mandatory in some countries and optional in others. A few levy no personal income tax at all.
Two employees on identical gross salaries in different countries will receive materially different amounts. If you are trying to offer comparable value across a distributed team, matching gross figures will not achieve it.
Country-level requirements are in CountryPedia.
Offer conversations. If you quote gross and the candidate is thinking net, you are discussing different numbers. Across borders neither side can easily estimate the other's.
Budgeting. Modelling headcount on salary alone omits employer contributions, which can be a significant addition depending on the market.
Accuracy. Deduction errors either underpay someone or leave them with an unexpected tax bill, and the employer generally carries the liability. See common payroll processing challenges.
We run payroll across 214 countries and territories, applying the correct deductions in each and paying people in local currency.
Talk to our team about the countries you are hiring in.
Before. Gross income is everything earned prior to any deductions. After tax and other deductions, the remaining figure is net pay.
Always, unless no deductions apply at all. Gross is the starting figure and net is what remains once tax, social contributions and any other deductions have been taken.
No. Cost to company includes employer contributions and the cost of benefits on top of gross salary. It is always the higher figure, and treating it as gross pay overstates what the employee receives.
Tax refunds, genuine gifts and loan proceeds are generally excluded, though gift rules and thresholds vary by jurisdiction. Employer contributions are also outside gross income, since the employer pays them separately.
Subtract the deductions: income tax, social security or national insurance, pension contributions and any voluntary items. Do not subtract allowances or bonuses, since those are part of gross pay rather than deductions from it.
Different tax rates, thresholds and social contribution regimes. The gap between gross and net varies widely, so equal gross salaries do not produce equal take-home pay across borders.