Glossary / Gross pay and net pay · Also called Take-home pay

How it works

Gross pay drives everything else. Income tax withholding, Social Security and Medicare in the US, and CPP and EI in Canada are all calculated from it, though pre-tax deductions such as some retirement plan contributions reduce the wages that income tax is calculated on.

For the employer, the real cost is higher than gross pay, not lower. On top of gross wages you pay the employer share of Social Security and Medicare, FUTA and state unemployment tax in the US, or the employer CPP and 1.4 times the employee EI premium in Canada, plus any benefits you pay for.

Worked example: A biweekly cheque in Ontario

An employee in Ontario is paid $2,500 gross every two weeks. CPP for the period is 5.95% of ($2,500 - $134.62 basic exemption share) = $140.74. EI is 1.63% × $2,500 = $40.75. Suppose federal and Ontario income tax withheld come to $310. Net pay is $2,500 - $140.74 - $40.75 - $310 = $2,008.51.

The employer also pays $140.74 CPP and $57.05 EI (1.4 × $40.75), so the cost of this cheque is about $2,697.79. The income tax figure here is illustrative; use the payroll calculator for exact withholding.

In the US and in Canada

In the United States

US payslips show federal income tax, Social Security (6.2% up to the $184,500 wage base in 2026) and Medicare (1.45%), state income tax where it applies, and deductions.

In Canada

Canadian payslips show federal and provincial income tax, CPP (or QPP in Quebec), CPP2 above the YMPE, EI, and deductions.

In AcboBooks

Run Payroll in AcboBooks shows each employee's gross pay, deductions, taxes and net pay before you save, and the pay stub lists the same lines with year-to-date totals.

Related terms

Related on this site

Sources

Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.

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Gross pay and net pay