How net salary is calculated from gross pay

The steps from a gross salary to take-home pay: allowances, income tax, social contributions and credits, with real examples from Germany and the UK.

Updated 17 October 2026

Gross pay and net pay

Gross pay is the amount in your employment contract before anything is taken from it. Net pay is the amount that arrives in your bank account. Between the two sit income tax, the employee share of social contributions and, in some countries, small compulsory fees. The employer pays additional contributions on top of your gross pay, and these never appear in your net pay.

Every country that Netpay covers works in the same order, even though the names and rates differ. First comes the tax-free part of your income, then tax on the rest, then contributions, and finally the credits that lower the tax bill.

Step 1: allowances reduce taxable income

An allowance is an amount of income that is not taxed. The United Kingdom gives a Personal Allowance of 12,570 GBP. Germany gives a basic allowance of 12,348 EUR in the income tax tariff and, on top of that, lump sums for work expenses and insurance. Norway gives a personal allowance of 114,540 NOK and a standard deduction of 46 % of salary up to 95,700 NOK. Sweden gives a basic allowance that depends on income and the price base amount.

The result is taxable income. It is lower than your salary, and it is the number that the tax rates apply to. Because allowances are fixed amounts, they make the tax system progressive at low incomes even before any bracket is reached.

Step 2: tax rates are applied to slices

Most countries charge a higher rate on higher slices of income, which is why moving into a higher bracket does not tax your whole salary at the higher rate. In England, Wales and Northern Ireland the first 37,700 GBP of taxable income is taxed at 20 %, income up to 125,140 GBP at 40 % and the rest at 45 %. A salary of 60,000 GBP has taxable income of 47,430 GBP, which gives 7,540 GBP at 20 % and 3,892 GBP at 40 %: tax of 11,432 GBP.

Sweden and Norway add a second layer. Sweden charges municipal tax on all taxable income and state tax at 20 % above 643,000 SEK. Norway charges a flat 22 % on ordinary income and a separate bracket tax on salary.

Step 3: social contributions

Contributions fund pensions, health care and unemployment benefits. In Germany an employee with a salary of 54,000 EUR pays 9.3 % to the pension fund (5,022 EUR), 1.3 % for unemployment insurance (702 EUR), about 8.75 % to the health fund (4,725 EUR) and 2.4 % for long-term care (1,296 EUR). Together that is 11,745 EUR, 21.75 % of gross pay. With income tax of 7,802 EUR in tax class I and no church tax, the net salary is 34,453 EUR a year.

In the UK a salary of 60,000 GBP pays 3,210.60 GBP in Class 1 National Insurance, so the net salary is 60,000 − 11,432 − 3,210.60 = 45,357.40 GBP.

Step 4: credits and the final result

A credit is subtracted from the tax itself rather than from income, so one unit of credit is worth one unit of money. The Netherlands relies on two credits, and Sweden gives a tax credit for the general pension fee and an earned income credit. In Netpay's breakdown, credits appear as negative lines so that you can see how much each one lowers the tax.

Enter your salary in the calculator for your country and compare the breakdown with your own payslip, line by line. If a line is missing or differs, the usual reason is a tax code, a pension scheme or a benefit that the estimate does not model.

Sources

Calculator