When comparing gross pay to net pay, what is the primary difference?

The primary difference between gross pay and net pay lies in the timing of deductions. Gross pay refers to the total amount earned by an employee before any deductions are made, which includes wages, salaries, bonuses, and any other earnings. This figure represents the full compensation an employee is entitled to receive for their work.

Net pay, on the other hand, is the amount that an employee actually takes home after all mandatory and voluntary deductions have been applied. These deductions may include federal and state taxes, Social Security contributions, retirement plan contributions, health insurance premiums, and other withholdings. The amount of net pay is therefore always less than gross pay, reflecting the expenses and obligations that reduce an employee's take-home earnings.

Understanding this distinction is critical for anyone involved in payroll accounting, as it helps in the proper calculation of employee earnings and financial planning for both employers and employees.