What distinguishes net pay from gross pay?

Net pay is defined as the amount an employee actually receives in their paycheck after all deductions have been taken out, including taxes, retirement contributions, health insurance, and any other withholdings. In contrast, gross pay represents the total earnings of an employee before any deductions are applied. This means that gross pay includes all forms of compensation such as base salary, overtime, bonuses, and other earnings.

The distinction between these two types of pay is fundamental in payroll accounting, as it directly impacts employees' take-home income and is essential for financial planning. Understanding this difference is crucial for accurately managing payroll processes and ensuring compliance with tax regulations.