Differentiating Gross and Net Salary, and how to convert Net to Gross so HR can’t mislead you
For working professionals, the thing everyone looks forward to the most is the salary received at the end of the month. And currently, many employees are still wondering how to calculate from Net to Gross salary, and what the concepts of Net Salary and Gross Salary are. Let’s explore the detailed information on how to accurately calculate salary in a business with 1Office in the article below.
If you are a job seeker preparing to sign an employment contract with a company, you will surely face the dilemma of choosing to receive a Gross salary or a Net salary. Because if you are not clear about this issue from the beginning, you will lose many benefits you are entitled to.
Even after becoming an employee, if you don’t understand it clearly, you should ask whether the company is paying you a Gross salary or a Net salary.
Net salary and Gross salary are the two most common forms of salary payment today. For those just starting their careers, this is a rather new concept, but for experienced professionals, it’s a very familiar term.
However, not everyone clearly understands whether receiving a Gross salary or a Net salary is more beneficial. If you haven’t grasped these two concepts, let’s explore them with 1Office in the following article!
Mục lục
1. What is a Gross Salary?
Gross salary is the total monthly income you receive, including your basic salary and other allowances and benefits, which also includes insurance contributions and taxes. The actual salary you receive will usually be lower than this Gross salary because you have to deduct a portion to pay for insurance and personal income tax as required by regulations.
Example of Gross salary calculation:
When you interview, you negotiate a salary of 10 million VND/month with the company. You must then deduct 10.5% of this salary to contribute to social insurance (SI), health insurance (HI), and unemployment insurance (UI) (8% for SI, 1.5% for HI, and 1% for UI) as required by the state. The final amount you receive at the end of each month will be 8,950,000 VND.
>> See more: What is Payroll? Key Foundations for Building a Payroll System HR Needs to Know
2. What is a Net Salary?
Net salary is the actual take-home pay you receive from the company each month after all insurance costs and personal income tax have been deducted. This is the amount you will receive without any other fees being deducted.
Example of Net salary calculation:
When you interview, if the company offers you a Net salary of 10 million, it means that at the end of each month, you will receive exactly 10 million without having to pay any additional fees for social insurance (SI), health insurance (HI), unemployment insurance (UI), or personal income tax. These fees have already been paid on your behalf by the company, as required by state regulations.
According to legal regulations, if an organization or individual pays an employee a salary that is exclusive of tax, this income must be converted into taxable income (also known as converting Net salary to Gross salary) to determine the final taxable income.
Simply put, Gross salary is your total income before deductions such as Social Insurance, Health Insurance, and Unemployment Insurance. Net salary is the amount you receive after these deductions have been made.
Once you understand these two concepts of net salary and gross salary, you can confidently negotiate a suitable salary with companies during interviews or employment to ensure your future benefits.
Read more: What is a lump-sum salary? Is it subject to Social Insurance and Personal Income Tax?
3. Formula for converting Net to Gross salary and vice versa
Based on the concepts above, we can convert Net salary to Gross salary with the following formula:
Net Salary = Gross Salary – (Social Insurance + Health Insurance + Unemployment Insurance + Personal Income Tax)
| Comparison | Gross Salary | Net Salary |
| Definition | The total salary paid by the employer to the employee each pay period | The actual take-home pay received by the employee each pay period |
| Includes | Social Insurance (8%)
Health Insurance (1.5%) Unemployment Insurance (1%) Personal Income Tax (if any) |
Does not include Social Insurance, Health Insurance, Unemployment Insurance, or Personal Income Tax |
| Relationship | Net Salary = Gross Salary – (Social Insurance + Health Insurance + Unemployment Insurance + Personal Income Tax) | |
| Preferred by | Employees | Employers |
| Advantages | Employees can proactively calculate their salary. | Employees can proactively calculate their salary. |
| Disadvantages | Employees must regularly calculate their insurance contributions and income tax to avoid miscalculations by the employer. | Employers may use this salary level to pay insurance for employees, leading to lower contributions and, consequently, lower benefits. |
How to convert Net to Gross salary
However, in reality, employees receiving a Net salary are more likely to face risks. Many businesses, when paying a Net salary, do not seriously pay the full insurance contributions for their employees.
In many cases, to minimize costs, many companies declare your Net salary as the Gross salary to insurance companies and tax authorities so that the amount the company has to contribute on your behalf is lower.
This will affect your benefits and the benefits of the employees. Every month you still make full and regular insurance contributions, but the benefits you are entitled to will be much less.
During the interview, if you negotiate a Gross salary with the company that, after deducting all required payments, is greater than or equal to your expected Net salary, then this is a very beneficial salary for you.
Reference: Automated HR and payroll management software – 1Office helps optimize HR processes
4. How to calculate PIT based on Net salary
Tax calculation formula:
PIT = Taxable income * Tax rate
Taxable income = Assessable income – deductions
Wherein, deductions include:
- Family circumstance deductions
- Charitable, humanitarian, and educational promotion contributions
- Social insurance, health insurance, and unemployment insurance contributions
Determining PIT payable
| Tax Bracket | Taxable Income/Month | Tax Rate | Tax Payable Calculation |
| 1 | Up to 5 million | 5% | TI * 5% |
| 2 | Over 5-10 million | 10% | TI * 10% – 250,000 |
| 3 | Over 10-18 million | 15% | TI * 15% – 750,000 |
| 4 | Over 18-32 million | 20% | TI * 20% – 1,650,000 |
| 5 | Over 32-52 million | 25% | TI * 25% – 3,350,000 |
| 6 | Over 52-80 million | 30% | TI * 30% – 5,850,000 |
| 7 | Over 80 million | 35% | TI * 35% – 9,850,000 |
Guide to calculating tax using the partial progressive tax schedule
Determine taxable income (for income from wages and salaries)
| No. | Income for Conversion (TNQĐ)/month | Taxable Income |
| 1 | Up to 4.75 million VND | TNQĐ/0.95 |
| 2 | Over 4.75 – 9.25 million VND | (TNQĐ – 0.25 million)/0.9 |
| 3 | Over 9.25 – 16.05 million VND | (TNQĐ – 0.75 million)/0.85 |
| 4 | Over 16.05 – 27.25 million VND | (TNQĐ – 1.65 million)/0.8 |
| 5 | Over 27.25 – 42.25 million VND | (TNQĐ – 3.25 million)/0.75 |
| 6 | Over 42.25 – 61.85 million VND | (TNQĐ – 5.85 million)/0.7 |
| 7 | Over 61.85 million VND | (TNQĐ – 9.85 million)/0.65 |
Conversion table from income exclusive of tax to taxable income
Formula for determining the income basis for conversion:
Income basis for conversion = Actual income received + Payments on behalf – Deductions
Where:
- Actual income received is the salary and wages, exclusive of tax, that the employee receives monthly
- Payments on behalf are monetary or non-monetary benefits paid by the employer for the employee
- Deductions include (as mentioned above)
5. Should employees choose a company that pays a Gross or Net salary?
Theoretically, whether you choose a Net salary or a Gross salary, the amount you receive is the same. Each of these two calculation methods has its own pros and cons.
Initially, many people think that receiving a Net salary is more beneficial because they believe they won’t have to pay any additional amounts from their take-home pay. However, if you convert a Gross salary to Net or vice versa, you will realize that these two salary levels are essentially equivalent.
However, in reality, it’s not that simple. We all know that the ultimate goal of businesses is to minimize costs, so some companies have taken advantage of employees’ understanding (or lack thereof) of the concepts of Gross and Net salary to benefit their own business.
Experts advise that employees should negotiate to receive a Gross salary, even if it means they have to pay their own insurance and personal income tax, in order to protect their rights.
Therefore, it is best to accept a Gross salary for more control, as you can easily calculate and manage your salary and the fees you have to pay.
Another point to note is that most companies that agree to pay employees a Gross salary are foreign companies. Therefore, if your company’s policy is to pay a Net salary, you should proactively request a detailed monthly statement of all insurance and tax contributions to ensure there are no “tricks” and that your rights are protected.
Don’t hesitate to discuss salary, as it is a crucial factor affecting your quality of life and job satisfaction. It also determines whether you can commit to this job long-term.
We hope that with the information 1Office has shared, you now have more information and knowledge to distinguish between Gross and Net salary – the two most common types of salary today. This will help you confidently choose your desired salary type to negotiate with employers.
Furthermore, if your business faces difficulties with traditional monthly salary payments for employees, where accountants spend a lot of time compiling payrolls and errors in calculation or mistakes in timekeeping can easily occur, you can consider 1Office’s effective employee timekeeping and payroll software to improve your business’s operational efficiency.
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