What is the difference between gross and net?

Do you have any idea what is actually meant by gross and net?

These are not the first words you will learn on your vacation in Italy, but they are important Italian words that will always accompany you in your everyday life. The difference between gross and net will not only affect your salary at the end of the month, but also the price of your sunscreen.
But what exactly do they mean? The words gross and net go back to Latin and are still used in Italian today. A look in the dictionary helps to get a definition and explanation and thus derive their meaning in German: According to it, brutto can be translated as "raw" or "impure", indicating the unprocessed character of something. Thus, brutto refers to an amount without deductions. Net, on the other hand, was borrowed from the Italian word for "pure" or "unmixed." It therefore describes something from which something has been taken away or deducted; or which is not mixed with other things.

Salary, price or invoice: the differences between gross and net play a role everywhere here

Lost with the terms? Then find out more here, because it's not only worthwhile for entrepreneurs to get to grips with the terms. For consumers, employees or retirees, the differences between a gross or net amount can also be quite decisive. 

The importance of gross and net in your salary

Many people notice the biggest difference between gross and net when they receive their pay slip. This clearly shows that the employer pays a larger amount than the employee receives as salary. Below we explain how this difference comes about, and in the section "Simple solution: net-gross calculator" we show you how you can use a calculator to quickly determine your net salary based on your gross salary.

The thing with VAT: invoices from hairdressers, craftsmen and co.

Whereas with salaries we are primarily interested in the net amount, i.e. the money we are paid, with invoices the focus is on the gross amount. In addition to the cost of a service, this also includes value added tax (VAT) and indicates how expensive the visit to the hairdresser or the commissioning of a tradesman actually is.

Shopping & Food: How gross & net affect the price when shopping

But even for smaller amounts and everyday purchases, we as consumers are confronted with the distinction between gross and net. On the one hand, the net price of a product together with VAT results in the gross purchase price, which you then actually have to pay at the checkout. On the other hand, the net and gross weight of packaged vegetables can differ. In this case, customers want to know how much is in the package (net weight) and are not interested in the weight of the packaging material. When shipping packages, things are different. Here, both the contents and the packaging (gross weight) need to be weighed in order to determine the price of the delivery and to sufficiently frank the package.

Check it out: Determine your net salary quickly and easily with a gross-net calculator

The amount paid by your employer and the net salary you receive can differ significantly. For example, if you work in the public sector, you will notice a difference between the gross amount in the TVöD pay table and the amount paid out in your bank account. The difference between gross and net pay depends on a number of factors.

Find out here how the differences between gross and net result and how you can easily calculate them with a salary calculator.

How taxes affect salary

Various taxes and insurance contributions are deducted from the gross wage, which may, for example, have been negotiated individually with the employer or set out in the collective agreements for the public sector (TVöD). Taxes include wage tax, solidarity surcharge and church tax. The amount of taxes depends on your income tax bracket and whether you belong to a church.

The working hours (part-time, full-time employment or employment as a working student), but also the hourly wage and thus the amount of gross income play a role. Depending on the annual amount, the income tax is between 14 and 45 percent. 

The amount of church tax also depends on income. It also depends on the respective federal state and amounts to eight percent of income tax in Bavaria, for example, and nine percent in Berlin.

The various social security contributions

In addition, there are various contributions to social insurance. These social insurance contributions are pension, health, unemployment and long-term care insurance. The amount can vary depending on the insurance company. For example, the statutory health insurance companies (e.g. AOK, Barmer and TK) charge different additional contributions.

The employer and the type of employment are decisive

One exception is the so-called 520-euro job (formerly 450-euro job, the limit was raised on October 1, 2022). In this case, the income tax is a flat rate of two percent, but is often paid by the employer and the employee can also be exempted from compulsory pension insurance. 

Furthermore, there are differences between persons who are in regular employment and those who are civil servants. In the case of civil servants, only income tax and the solidarity surcharge are deducted from their gross salary. However, they must take out private health and long-term care insurance.

Pension and retirement

The difference between people who are civil servants and those who are not also becomes clear in old age. Pension income is taxed in full (apart from a small pension allowance). Pensions, on the other hand, are often only taxable to a certain extent. In both cases, health insurance contributions are added. 

Simple solution: net-gross calculator

Do you want to calculate your net salary quickly and easily? The easiest way is to use a salary calculator. With the help of various details such as the amount of your gross salary, the state in which you live and the tax bracket to which you belong, you can use these salary calculators to calculate your net amount. Pension calculators also offer workers the ability to determine the net amount they will be paid in retirement. There are both pension and retirement calculators.

Gross and net differences outside Germany: Austria and Switzerland

The difference between net and gross salary does not only concern employees in Germany. Taxes and social security contributions are also deducted from gross salary in other countries. Various factors can have a different impact. In Austria, for example, the age of the children or the commuter allowance also play a role, while in Switzerland, the place of residence has an influence. Salary calculators for Switzerland and Austria can help you find out about the regulations in our German-speaking neighboring countries.

Calculator: Examples of net and gross salary differences in Germany

We have now described the differences between gross and net. But what does this mean in concrete terms for your salary payment as an employee? We will use a few brief examples to illustrate this for the German labor market. We have compiled the data with the help of a gross-net calculator, as of October 2022.

3,000 euros gross salary - what's left net?

An employee who earns 3,000 euros gross per month, is unmarried, has statutory insurance and is childless and non-denominational would receive a net wage of 2,009.25 euros as things stand. If this person belonged to a church in Bavaria, another 30.27 euros would be deducted.

2,800 euros gross as a family man: This net salary beckons

If instead you receive 2,800 euros gross, are married (tax class 4) and have children, the net amount is 1,904.75 euros without church tax and 1,877.65 euros if you belong to a church (simplified here without taking into account any child allowance).

Example number three: 520-euro job (formerly 450-euro job)

With a 520-euro mini-job, your gross salary can be equal to your net salary. Although tax is generally payable at a flat rate of 2% of income, the employer often pays this tax. Meanwhile, no contributions have to be paid to unemployment insurance, and employees can also be exempted from pension insurance. Those who do this actually receive a higher proportion of their salary, but at the same time the risk of old-age poverty increases, of course, as no contributions are paid into the pension insurance scheme.

Mnemonic: Never confuse gross and net again!

Now you know the most important differences between gross and net. But maybe you still find it difficult to distinguish between the two words and you keep asking yourself: which of them was what now? Was gross a part of net? Or was it the other way around? No problem: We have a really simple and practical mnemonic for you. So once again very briefly: Basically, gross is equal to net + surcharges: Your gross salary is the sum of your net salary plus payments for insurances etc. Simplified, you could say that net is the smaller value and a part of gross. And that's quite obvious: net is, after all, the smaller word and has only five letters, whereas gross has six.

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FAQ

What is gross and net simply explained?

Gross (Ital. for "raw") refers to an amount without deductions. A gross salary therefore consists of the salary and the various social security contributions. Net (Italian for "pure"), on the other hand, refers to the amount from which something has been deducted. A net salary is therefore the amount paid to employees after deductions.

Is net with or without tax?

A net amount is without taxes. The net wage is what is paid to employees after deductions from the gross wage. In the case of an invoice or a purchase, VAT must be paid in addition to the net amount.

What is deducted from the gross salary?

Taxes and social security contributions are deducted from the gross wage. Taxes include wage tax, the solidarity surcharge and, if applicable, church tax. In addition, various social security contributions such as pension, health, unemployment and long-term care insurance are deducted from the gross amount.

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