A trick people often recommend when dealing with calculations is ensuring not to forget the formula for each problem. Since today’s post is about calculating gross and net salary, we’ll examine the key role human resources play in this, as well as ensuring accuracy in these processes.
Gross income or gross salary is defined as the total income earned by an individual or business from various sources, which includes salaries, wages, tips, dividends, interest, and capital gains. Simply put, gross salary is the income before any deductions.
What is Adjusted Gross Income?
Adjusted gross income is different from gross income in that it is described as gross income minus certain deductions and exemptions. These deductions in adjusted gross income may include charitable donations, mortgage interest, and medical expenses. It is that income that is subject to taxation.
Gross and Net Salary in Nigeria
Now, we will be looking at how gross and net salary in Nigeria is calculated. Before that, let’s examine the difference between Gross Income and Adjusted Gross Income by using a regular Nigerian employee.
Fidelis is a Communications Expert who earns N5 million per year. He also earns N1 million in interest from his savings account.
Additionally, he donates N200,000 to charity and pays N500,000 in mortgage interest.
Gross income = N5 million (salary) + N1 million (interest) = N6 million
Adjusted Gross Income= N6 million
(Gross income) – N200,000 (charitable donation) – N500,000 (mortgage interest) = N5.3 million
From the illustration of Fidelis’ earnings, his gross income is N6 million, while his adjusted gross income is N5.3 million.
The difference between gross and net salary is the result of the deductions applied to his gross income. On the other hand, net salary is paid in order to provide employees their actual take-home pay, enabling them to have financial planning that is effective, as well as budget and savings.
Getting paid net salary is not optional, it is necessary because it reflects deductions from gross salary. The deductions, depending on the voluntary and mandatory deductions guiding the labour laws in each country, could include income tax, health insurance premiums, retirement plans, and so on.
Net salary represents the actual disposable income which allows you to manage your expenses effectively, including achieving financial stability and financial security for the future.
What is Net Salary?
In the simplest form, net salary is what an employee gets at the end of work. It is why it is referred to as take-home pay; it is what is left from an employee’s earnings after deductions.
In Nigeria, net salaries are calculated as follows:
Net salary in Nigeria is calculated by highlighting what makes up the gross salary such as basic salary, allowances, bonuses, and benefits.
Next, the contribution rates for voluntary and mandatory deductions are determined.
Thirdly, the deductions are subtracted from gross salary Lastly, the amount derived from the third step is determined as net salary.
What is Annual Net Salary?
Annual net salary is the total salary you get for a year, after deductions. There are 12 months in a year, try calculating the take-home pay you received monthly and multiply by 12 to get your annual net salary.
Annual Net salary is derived by calculating the subtracted deductions that are mandatory and voluntary from your annual gross salary. The deductions are pension contribution, health insurance premiums, tax, and so on.
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