What is the meaning of net pay?

Net pay refers to the amount of money an employee takes home after all deductions, such as taxes, retirement contributions, and other withholdings, have been subtracted from their gross income. This figure represents the actual earnings that are available for spending or saving.

The distinction between net pay and related concepts is important to understand. For instance, gross income refers to the total earnings before any deductions are applied, which includes not just salary but also any bonuses and benefits. This is different from net pay, which is calculated post-deductions. By focusing on net pay, individuals can effectively budget and manage their finances based on the actual amount they have available for living expenses and savings. Thus, the correct definition aligns accurately with the everyday financial experience of employees receiving their paychecks.