A career plays a crucial role in shaping a responsible individual. For some, it is merely a way to pass the time, for others, it serves as a reliable source of income, and for many, it is a vital part of their life.

Employees working in agencies or companies aim to contribute positively to their surroundings by applying their knowledge, gaining experience, and earning an income, commonly referred to as a salary.

Employers must have standard procedures for payroll and policies for providing employee incentives. A well-prepared payroll system can help achieve several organizational goals.

However, employees often find the salary they receive confusing, as it is usually less than the agreed amount. The common question is, "Where did the rest of my salary go?" Many employees do not fully understand the difference between their gross and net salary.

This article explains the concepts of gross salary and net salary and highlights the differences between the two.

What is Salary?*

Salary is a regular payment made by an employer to an employee in exchange for the work performed. Typically paid at fixed intervals, often monthly, salaries are usually expressed as an annual amount.

In Indonesia, salaries are generally calculated on a monthly basis, and factors like job position, company location, and regional differences also play a role in determining salary levels.

Definition of Basic Salary

Basic salary is a fixed amount paid to employees for their work. According to Article 94 of Law Number 13 of 2003, the basic wage component must be at least 75% of the total basic wage and fixed allowances.

The basic salary forms the core of an employee's compensation structure and remains unchanged before any additions from overtime, bonuses, or other benefits.

What is Gross Salary?

Gross salary refers to the total amount of money an employee earns before any deductions. It includes the basic salary, fixed allowances, non-fixed benefits, overtime wages, bonuses, and other income. Deductions such as income tax, pension contributions, and BPJS contributions are not subtracted from the gross salary.

What is Net Salary?

Net salary, often called the take-home pay, is the actual income received by an employee after all deductions like taxes, savings, and other contributions.

Net Salary = Gross Salary - Income Tax - BPJS Employment and Health Contributions - Pension Insurance - Professional Tax.

Net salary is usually lower than gross salary unless income tax is zero or the employee's salary falls below the government tax limit.

Key Differences Between Gross Salary and Net Salary

1. Definition: Gross salary is the total annual compensation before deductions, while net salary is the amount remaining after all deductions.

2. Amount: Gross salary is always higher than net salary.

3. Dependency: Net salary is derived from gross salary after all necessary deductions.

4. Components: Gross salary includes all benefits paid by the employer annually, whereas net salary is the fixed amount the employee takes home each month.

Understanding these differences can help employees better manage their expectations and financial planning.