Each employee will certainly receive income every month. However, if you look at the salary slip in more detail, there are two types of information in it. The first is gross income and the second is net income. Some people already understand enough about it. But those employees who have just worked may feel confused knowing what the difference between the two is.
It is not only limited to salary, but companies can also have gross income reports. Therefore, it is quite interesting to know more about it. If you want to know more about it, see the following explanation below.
Definition of Gross Income
The definition of gross income for individuals and companies can be different. Therefore, it is necessary to divide its definition based on these two things. Gross income is the sum of all wages, salaries, profits, interest payments, rents, and other kinds of earnings before any deductions or taxes for households and individuals. It contrasts with net income, which is defined as gross income deducted by taxes, and other deductions (e.g., mandatory pension contributions).
For a company, gross income (also known as gross profit, sales profit, or credit sales) is the difference between revenue and the cost of producing a product or delivering a service before subtracting overheads, wages, taxation, and interest payments in a business. It is not the same as operational profit (earnings before interest and taxes). The phrases gross margin and gross profit are used interchangeably. However, they are not the same. When referring to a monetary amount, the phrase gross profit is proper. But when referring to a percentage or ratio, the term gross margin is correct. In other words, gross margin is expressed as a percentage, whereas gross profit is expressed as a monetary number.
Component of Employee Gross Income
Gross income has several components in it. Every company may have different components in that regard. But basically, here are some of the components contained in the gross income of employees.
Basic salary is the main component that must be available in the salary slip information. This is also a component that makes up gross income. Because this basic salary is a salary given by the company related to employee experience and expertise. Generally, this component is the component with the greatest value, because it can be said to be the main component.
Some companies decide to compensate the employees with leave. Especially if it cannot take away its leave rights for a specified period. Generally, the leave compensation can be replaced by a leave allowance. Where this is the amount of income received by employees according to the agreed basic salary.
Some provide house allowance as part of the employee’s gross income. Generally, this component is given to certain qualified staff. So it is not surprising that it is often given to senior staff in the company.
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Similarly, the house allowance is also part of the employee’s gross income. Generally, this component is also given to certain qualified staff. So most of it is given to senior staff in the company.
Telephone or Mobile Allowance
Many companies decide to compensate for communication needs. Whether it’s to call clients, contact superiors or subordinates, to use internet data for the company’s online purposes. Therefore, it is not surprising that this one allowance is included in the employee’s gross income.
The amount of the employee’s annual bonus will usually be adjusted based on the employee’s basic salary. Therefore, the bonus component is included in gross income as well.
Payment for Overtime
The amount of overtime pay according to the salary rules also depends on the size of the basic salary component. So of course, the salary related to this overtime must be included in the gross income component.
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Gross Income VS Net Income
Before deductions, taxes, and other expenditures, gross income is the amount of all money collected from delivering services to clients. Net income, on the other hand, is the profit attributed to a company or individual after deducting all costs. Net income for a business is computed by deducting all business expenses such as taxes, advertising costs, and interest charges, as well as any qualified deductions such as professional and legal fees.
If the net income is positive, the firm is profitable; if it is negative, the business is losing money. If the gap between gross profit and net income is substantial, it indicates that the company has a lot of costs. In such a case, the company should analyze its spending to eliminate needless costs and lower required costs. Individual net income is defined as income generated after subtracting state and federal taxes, social security taxes, health insurance, and other expenses.
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Those are some explanations about gross income, starting from its definition, and constituent components, to the fundamental differences with net income. This information, hopefully, can provide a better explanation for employees who are working for the first time. So that when receiving a salary slip every month, they can know how much gross income to net income they get.