Gross value and net value are two categories of values that a large part of society does not know how to differentiate. Those who work in HR must be tired of hearing that question: “What are these discounts on my salary?”.
Understanding the difference between gross salary and net salary is essential to know how much money you will have in your wallet as soon as the payment drops, being able to program and maintain control of your finances.
What this article covers:
What is Gross Value?
In short, gross amount is the balance net of any discounts such as taxes and other deductions. This amount is agreed upon at the time of hiring, which can be seen on the paycheck or work book.
In addition to the gross salary, we can find this value in several other segments. For example, when issuing a DANFE (electronic invoice auxiliary document) we can find the following values:
When is Gross Value used?
When it comes to an employee, the gross salary is used as a basis for calculating benefits, deducting income tax, social security and other taxes.
The gross value must also be considered by shopkeepers when buying and selling their goods. The gross value of your sales is the total amount generated by all merchandise sold, while the net is the profit that the shopkeeper will have after investing the money in new merchandise.
What is Net Worth?
In a practical way, the net value is everything that goes into “your pocket”. In salary, the net value is found after deducting all taxes and deductions from the gross salary.
Also, as mentioned in a previous example, the net salary also refers to all the profit acquired by an entrepreneur, after he has already made his investments and paid the due taxes.
How is the Net Value used for calculation in sales?
The net amount in sales is known as “net income”. Every investment is subject to taxes and rebates, which will be deducted from the gross return that such investment will generate.
Regardless of the type of investment made, there are taxes and fees that will be mandatory, such as administrative fees, custody fees, performance fees, among others.
What are the differences between Gross and Net Amount
Here we can highlight the main differences between the gross amount and the net amount.
- The raw value has a high volatility, not being ideal to be used as a basis for budgets;
- The net value is ideal for having a profit margin;
- Gross salary is used as the basis for calculating taxes and benefits;
- The net salary is the amount that is deposited in the employee’s account.
As much as many people have doubts at first, understanding the difference between the two is very simple and intuitive.