Contact Us
payslip

Gross Pay vs Net Pay

Payroll

24 June 2025 (Last updated 3 Dec 2025)

Share on:

Understanding gross pay is crucial for smooth payroll processing and maintaining transparency with your team. In this guide, we’ll explain the definition of gross pay, the difference between gross pay vs. net pay and your responsibilities as an employer.  

What is gross pay?

Gross pay is the total salary you agree to pay an employee before any deductions are made, like taxes, KiwiSaver contributions and student loan repayments. This includes their base salary, bonuses, commissions, and other taxable income. It's the number you base an employment agreement on, and it will be clearly stated in contracts and payslips. 

What’s the difference between gross and net pay? 

As well as gross pay, your employee’s ‘net pay’ will also appear on their payslip.  

While gross income shows the amount your employee has earned before any deductions, net pay reflects the amount they will receive after deductions are made.  

Net pay is always a lower figure, reflecting the amount that will be paid into your employee’s bank account. For this reason, net pay is often referred to as ‘take-home pay.’ 

What deductions are taken from gross pay? 

When it comes to payroll deductions from an employee's gross pay, accuracy is vital. Always double-check income tax brackets, contribution rates and other relevant details to avoid errors. If you’re unsure about complex payroll situations or specific deductions, consult a qualified advisor.  

Mandatory deductions 

  • Income Tax: Payroll taxes are the biggest amount, calculated based on each employee's tax bracket. 
  • KiwiSaver: If an employee chooses to participate in this retirement contribution scheme, you deduct their contribution and match it with your own (employer contribution is mandatory if they meet eligibility criteria).  
  • Student Loan Repayments: If applicable, you automatically deduct these from their salary. It's like helping them gradually pay off the tools they used to build their skills. 
  • ACC Levies: These contribute towards the Accident Compensation Corporation, protecting your team in case of unforeseen mishaps. Think of it as collective insurance for everyone's wellbeing. 

Are employers allowed to make additional deductions? 

While the above are mandatory, remember you can only make additional deductions under specific circumstances: 

  • Written consent and employee benefit: Like deducting the cost of uniforms or tools they specifically require for their job. Ensure they understand the benefits and agree freely. 
  • Court orders: For example, child support payments. 
  • Law or regulations: Like compulsory superannuation in some industries. 
  • Employment agreement or registered agreement: Be transparent. Clearly outline any deductions in their contract before they sign. 

An employee’s written agreement must be genuine, and they can’t be forced into agreeing to any deductions. It’s important to note that deductions should be shown on your employee’s payslip, as well as their time and wages records.  

Calculating gross pay 

If you’re an employee in New Zealand and you want to calculate your gross pay, you can use the information included in your latest payslip. The calculation will vary depending on whether you are paid an annual salary or hourly wage.  

Calculating gross pay for an annual salary  

The salary recorded in your employment agreement will be your official annual gross income. You can also find your gross salary on your payslip. If your payslip shows a gross monthly pay of $6,000, then you simply multiply this amount by 12, (6,000 X 12 = 72,000). Your gross annual pay is $72,000.  

If you receive any bonuses, financial benefits, or commissions, you’ll need to add these, too. If you earn $72,000 as a base annual salary, but you’re also paid $5,000 in bonuses for the year, your gross annual pay is $77,000. 

Calculating gross pay for an hourly wage  

If you earn an hourly rate of pay and you’re unsure of how many hours you’ll work annually, it’s easiest to wait until the end of the year and calculate it then.   

If you work set hours each week, you can calculate your gross annual pay yourself in advance. If you work 20 hours a week at an hourly rate of $20, your weekly gross pay is $400, your monthly gross pay is $1,600, and your gross annual pay is $19,200.   

Remember – if you take any unpaid days off in the year, you’ll need to deduct the pay from your gross pay. Similarly, if you receive a pay rise or take on any additional shifts, you’ll need to recalculate the rest of the year with the new pay rate or increased number of hours included.   

Calculating net pay 

To calculate net pay in New Zealand, you must understand how to navigate Pay As You Earn (PAYE) taxes and deductions.  

Imagine Sarah, who earns $4,000 gross pay monthly. First, her employer deducts PAYE at a rate dictated by her income and tax code. Let's say Sarah belongs to the 30% income tax bracket. Payroll taxes of roughly $1,200 go directly to the Inland Revenue. Then, various deductions chip away further. Perhaps Sarah contributes $400 to KiwiSaver, $200 for student loan repayments, and $50 for union fees.  

By subtracting these expenses and deductions from her gross pay, Sarah arrives at her net pay – $2,150 — landing in her bank account.  

Remember, this is a simplified example. Individual circumstances can involve different income tax rates, deductions, and credits. Tools like online PAYE calculators or consulting a professional can help ensure your net pay calculations are accurate.  

What is gross salary? 

Gross salary refers to the total amount an employer regularly pays to salaried employees. It’s normally expressed as an annual sum divided into fortnightly or monthly payments. When your employee starts working for your business or they receive a pay rise, their gross salary will be agreed upon and laid out in an employment contract. 

Much like gross pay, gross salary is an employee’s income before tax and other contributions are deducted. Net salary refers to your employee’s take-home salary after deductions are made. 

Why is gross salary important? 

As an employer, it’s vital you have an accurate understanding of each employee’s gross salary. Gross salary is used to calculate the percentage of an employee’s pay you should withhold for taxes, while it can also be used to calculate an employee’s redundancy pay entitlements. 

Businesses also rely on gross salary information when budgeting and financial planning. By knowing your total labour costs, you can allocate financial resources effectively and make informed decisions about expenses, investments, and future growth opportunities. 

As an employee, the gross salary you offer will be crucial when deciding whether or not to accept a job offer. Gross salary is also important to employees because it is used by creditors when they review loan applications. 

What is gross income? 

To calculate annual gross income in New Zealand, you must include an employee’s gross salary, as well as any: 

  • Tips 
  • Commissions 
  • Bonuses 
  • Overtime 
  • Holiday pay  
  • Employee benefits: Certain non-cash benefits provided by your employer (e.g., meal allowance, phone allowance) 
  • Superannuation  
  • Dividends 
  • Pension payments 

Gross annual income refers to all the above combined into a yearly sum. 

Get expert HR and HSW advice for your business today  

Running a small to medium-sized business in New Zealand can be incredibly rewarding, but it isn’t without challenges. Our mission is to provide accessible and affordable workplace relations and workplace health and safety advice to businesses just like yours. Contact Peninsula today to speak with a representative.

Have a question?

Have a question that hasn't been answered? Fill in the form below and one of our experts will contact you back.

By clicking submit you consent to our Privacy Policy

Related Guides

Payroll

Creating an expense policy

Business owners and employers need to keep track of several things including their employees, performances, and even finances within the business. This includes employee expenses and related costs that may arise in the workplace. Employees can claim expenses in certain situations and depending on their role and nature of work. It is vital to have a clearly communicated and documented expenses policy and process, so employees are aware of their duties and expense limit. Your employees are entitled to be reimbursed, as long as their spending falls within the policy. In this best practice guide for Aussie employers, we outline what is an expense policy, things to include in an expense policy, and related factors. Peninsula has worked with thousands of businesses in Australia, supporting them in matters of employment relations and workplace health and safety. Employee expense policy Your employees can claim expenses in established situations, depending on their role and nature of work. Having an employee expense policy is standard practice and good for your employees as well. It helps them understand the expectations around reimbursement, expenses, and filing invoices. The employee expense policy should explain documentation, approval processes, and define both reimbursable and non-reimbursable expenses. In your employee handbook or induction process, explain the expense policy, the way to claim expense and eligibility. Several companies only allow expense claiming to sales and business development executives or public relations employees.  You can outline your expense policy and share it with your new and current employees. It should be available on your company intranet, your company social media, your company handbook, and with HR. Things to include in an employee expense policy Your expenses policy must set out what spending is legitimate and what is not. It should describe what evidence employees need to show to support their claim, such as receipts, and whether they need approval or countersigning first. It is expected to have a person or department that handles these claims and keeps a record of expenses.  You are allowed to set limits, such as a maximum cost for hotel rooms, or informing your employees to use a company approved hotel chain or airline. Businesses can create a company account that can be used to book hotels, flights, or cars. You can also set limits on length of time before making a claim, so employees do not build up large expense claims over time.  Review these expenses every year or quarter, depending on the size of your business to understand your finances.  If you make changes to your expenses policy, you have to let your employees know in writing. You can also ask them for sign-off, to prove they have read and understood the changes. By enforcing the expenses policy in practice, employees are less likely to make false claims. Writing a good employee expense policy A good employee expense policy should be written clearly and have a positive tone of voice. Most of your employees submit valid claims and so it's vital that they don’t feel penalised or burdened for the same. By focusing on writing what employees are entitled to, you avoid them feeling restricted or mistrusted. A fair and reasonable expense policy will maximise staff uptake and helps to reduce costs. Use clear and specific language to avoid ambiguity. Provide examples to help them understand their duties and responsibilities. Create a FAQ section or glossary of terms to sit within your policy. Before you write your policy, you might want to research the expense types of similar organisations. Look at the monetary limits they set and let those limits reflect the level of authority. Types of expenses Employee expenses fall under two categories: Expenses that are paid directly by the company on behalf of employees. Expenses that are paid by the employees and are reimbursable. Travel expenses include any kind of transportation and accommodation expenses that employees incur when going on a business trip. Expenses related to this category that may be fully or partly reimbursable include: Accommodation. Legal document expenses (e.g. Visa). Air, train, ship or other transportation fares, Necessary medical expenses (e.g. vaccinations). Local transportation during trips (taxi fares, rental cars etc.). Other minor or per diem expenses that have been approved by an employee’s manager (e.g. meals, business material). Work-related expenses include expenses that are related to an employee either in the form of a benefit (e.g. business phone) or entertainment expenses that may occur in a business setting (e.g. professional dinners with clients or colleagues). Non-reimbursable expenses There are few types of expenses that cannot be claimed: Personal purchases and personal travel. Normal travel to and from work. Fines incurred while driving a company vehicle. Non-business subscriptions or training. Hotel mini-bar costs. Lost items. Expenses incurred by spouses/partners or other non-employees who accompany employees on business trips. Service upgrades. Procedure to claim expenses When your employee goes on work-related trips, the office manager/ personal assistants/HR manager will arrange for accommodation and transportation costs. They will also document expenses. Your employees will need to: Document any expenses that the company hasn’t directly arranged for (e.g. taxi fares). Get bills and receipts from everywhere. There is also a per diem sum to cover other necessary travel expenses. Submit a reimbursement claim through the company software or submit an expense report with all necessary documentation. Dealing with falsified expenses If you believe there are falsified or exaggerated expenses, they should be investigated. Consistent violations can also lead to potential disciplinary action. When your employees breach company expense policy, they may also be required to repay the Company any amounts incurred otherwise in accordance with this policy. Manage your workplace confidently with Peninsula Employers have responsibilities they need to meet, and a big part of these responsibilities is providing clear policies and procedures to employees. Having established and clear policies makes your workplaces secure and consistent. We know the challenges business owners and employers face and the support they need for employment relations and workplace health and safety. For expert advice on creating a claiming expenses policy for your business contact the team at Peninsula. This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.

Payroll

Payroll
View all guides

Do you have any questions regarding Payroll?

International Sites

United Kingdom

Republic of Ireland

Northern Ireland

Scotland

Canada

Australia

© 2025 Peninsula Employment Services Ltd. Registered Office: 8 Tangihua Street, Auckland CBD 1010

Peninsula Protect is a discretionary risk product issued by Peninsula Mutual Limited ACN 630 256 478 AFS Licence No. 544232. Peninsula Mutual Limited has appointed Peninsula Group NZ Limited NZBN 9429042175179 to distribute the discretionary risk product in New Zealand. To decide if this product is right for you, please read the Peninsula Protect Product Disclosure Statement (PDS) and Target Market Determination.