Answer
The amount that employee receives after certain deductions from gross pay is known as the net pay. Deductions can be in the form of retirement account pay and others. It is also known as take-home pay.
Work Step by Step
Net pay is the pay received after deducting taxes and other deductions from the gross pay. Taxes can bea federal tax, state tax, FICA tax etc. Deductions include retirement account pay and other benefits. It is also known as the take-home pay as this is the amount that an employee receives from the employer for his/her expenses.
Example: A woman ‘Y’ makes $75 an hour and works 25 hours during a week. ‘Y’ pays $55 as tax and $30 to an individual retirement account. Calculate the amount of net pay for her in a week.
To calculate net pay, first calculate the gross pay by multiplying earnings per hour with the working hours per week.
\[\begin{align}
& \text{Gross}\,\text{pay}=\text{Earning}\,\text{per}\,\text{hr}\times \text{Working}\,\text{hr}\,\text{per}\,\text{week} \\
& =\$75\times25\\&=\$1,875\end{align}\]
Now, subtract the sum of taxes and retirement account pay from gross pay to find out the net pay.
\[\begin{align}
& \text{Net}\,\text{pay}=\text{Gross}\,\text{pay}-(\text{Taxes}+\text{Retirement}\,\text{account}\,\text{pay}) \\
& =\$1,875-(\$55+\$30)\\&=\$1,875-\$85\\&=\$1,790\end{align}\]
Hence, the amount of net pay of Y is \[\$1,790\].
