Net salary or more often referred to as in-hand salary, is the amount or income that an employee actually takes home after deducting taxes, savings funds and other deductions, and knowing how to calculate net salary is very important for you as a business owner or employee.
Net salary is different from gross salary. This can be the same in cases where the income tax is 0 and when the salary earned by the employee is less than the government's tax limit.
In this article, we will discuss what net salary is and how to calculate net salary along with formulas and case examples, so read on until the end.
What is Net Salary?
As we already discussed, net salary, also referred to as in-hand salary, is the amount credited to an employee's salary account every month (or weekly, depending on the terms of the employment contract). This amount is provided by the organization, where the individual works, after the employer has deducted deductions such as income tax, BPJS TK contributions, etc.
It is very important to record the net salary when calculating salaries. Net salary is the actual figure an employee earns for the services he or she provides to the organization.
The payments received can be used to manage expenses such as household expenses, travel expenses, etc. When a job offer is made to a prospective employee, the individual should ask about the net salary.
Often, many of the components listed in a salary structure can seem confusing. An employee must understand the difference between net salary and gross salary in relation to the employment contract offered.
What is the Difference Between Gross Salary and Net Salary?
Gross pay is the amount paid to an individual by an employer before deductions are made. Gross salary can be calculated by adding up the basic salary, BPJS TK contributions, transportation allowance, medical expense reimbursement allowance, house rental allowance, meal allowance, leave travel allowance and other allowances.
It should be noted that gross salary does not take into account deductions made. In other words, it is the salary paid after adding up all allowances and allowances, but before deductions such as employee contributions for BPJS TK contributions and taxes.
Net salary is the take-home salary remaining after all tax deductions and contributions have been deducted. This deduction includes pension contributions (if any), income tax and BPJS TK contributions.
It should be noted that when compared to gross salary, the amount calculated as net salary will be lower due to various allowable deductions.
What is the Difference Between Net Salary and Basic Salary?
The basic salary is the amount a person receives before any additional or reduced payments are made. An employee's basic salary does not include bonuses, overtime pay, or other potential compensation from the employer, nor does it take into account deductions made such as income tax, BPJS TK contributions, etc. Basic salary is fully taxable.
On the other hand, net pay is what an employee takes home after all necessary deductions are made from gross pay.
This can be calculated by first adding up the basic salary, bonuses and allowances, and then subtracting income tax, BPJS TK contribution deductions and professional tax from them.
Net salary will be less than gross salary due to mandatory and voluntary deductions. The entire amount of the basic salary is part of the take-home salary or take home pay.
Why is Salary Important?
Some salary functions that you need to know are as follows:
A. Motivate Employees
If salaries are allocated to employees or human resources efficiently, it will help encourage better work and more productive employees in the future. If employees are more productive, the company will of course get the benefits, namely the company's performance will increase.
B. Promote Economic Stability and Growth
Indirectly, providing employees with decent salaries, according to the work they do, can help encourage economic stability and growth. Therefore, companies need to pay attention to the minimum wage when paying employee salaries. This salary payment cannot be lower than the standards set in each region. Then apart from that, don't make a mistake in calculating employee salaries.
C. Retain Employees for the Long Term
Payrolls that comply with the law and wage scales are also very important for both employees and the company itself.
Employees will stay at a company for a long time if the company treats them well. Never be late in paying salaries and paying them according to applicable standards.
If not, then employees will not hesitate to leave the company and look for a better job. If employee turnover is reduced, companies will also feel the benefits without having to bother recruiting repeatedly.
An Important Component in Calculating Net Salary
A. Net Salary
Basic salary or base wage is the basic compensation given by the company for the work carried out by employees, the amount of which is agreed upon by both parties at the start.
The basic salary is the main component of an employee's income, which is at least 75% of the basic salary plus fixed allowances.
How do you Determine the Basic Salary?
The amount of basic salary is influenced by many things, but there are three parameters that are widely used by companies to determine the amount of basic salary, namely:
A. Job value in the market: basic salary is influenced by the type of job, qualifications and skills, the amount of demand in the market, labor availability, and job location.
B. Company capabilities: basic salary is also adjusted to the wage structure and scale based on the company's financial capabilities. You need to know how to manage small business finances.
C. Job contribution: basic salary is also influenced by how much the job plays a role in driving business growth.
There are employees who receive a basic salary and allowances, but there are also those who only receive a basic salary without allowances. An example of a basic salary slip without allowances is a daily freelance worker's salary slip.
b. Fixed Allowance
Fixed allowances are also included in the employee's income column. This allowance is given by the company on a regular basis with a fixed amount every month, for example the position allowance given to employees with certain position groups. BPJS benefits from the company can also be included as fixed benefits, which include:
- Health Insurance Benefit: 4% of wages
- Work Accident Insurance Benefit: 0.24% to 1.74% of wages
- Death Benefit Benefit: 0.3% of wages
- Old Age Security Benefit: 3.7% of wages
- Retirement Security Benefit: 2% of wages
c. Irregular Allowance
Non-fixed allowances are calculated based on the employee's attendance, for example food allowance and transportation allowance. Therefore, the amount of this allowance is irregular.
In contrast to the basic salary and fixed allowances which are constant amounts, non-fixed allowances must be calculated every month based on employee attendance data.
d. Overtime Pay
Overtime pay is given to employees who are employed by the company outside of working hours. Overtime pay is calculated according to the latest government provisions in PP No. 35 of 2021, the value of which ranges from 1.5 times to 4 times the hourly wage for each overtime hour.
e. BPJS Contributions
BPJS contributions are health insurance premiums and social and employment insurance which are managed by the state. In the deduction column, BPJS contributions can be detailed as follows:
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Health Insurance Contribution: 5% of wages
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Work Accident Insurance Contribution: 0.24% to 1.74% of wages
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Death Benefit Contribution: 0.3% of wages
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Old Age Security Contribution: 5.7% of wages
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Pension Guarantee Contribution: 3% of wages
A. PPh 21
The next component of employee salary deduction is income tax PPh 21/26. PPh 21 is calculated first separately according to the procedures for calculating income tax for individual taxpayers, and then the results are entered into the salary deduction column.
B. Loan (if any)
If an employee has an obligation to pay an office loan, then the installment is included as a salary deduction component.
How to Calculate Net Salary
A. How to calculate net salary for permanent employees
Before calculating the salaries of permanent employees in a company, it is important for you to know how much each salary component is. To understand it better, Ipresens will present examples of cases like the following:
Andra is a private employee with permanent status with assumed data regarding monthly income and expenses as follows:
Salary Income Components Total
Basic salary 5,000,000
Overtime pay 500,000
Fixed allowance 500,000
Total salary received IDR 6,000,000
Apart from the income components above, there are also deductions from net salary that must be calculated in this process, such as position fees which are 5%, BPJS program contributions and PPh 21 deductions as depicted in the following table:
Reduction Component Amount
Position Allowance 250.000
BPJS Contributions 60.000
PPh 21 97.500
Total Reduction Rp 407.500
After calculating the income and deduction components of Andra's salary, then subtract the amount of income and deductions to see how much salary Andra receives per month.
Net Salary Components Total
Total income 6,000,000
Total reduction 407,500
Total Net Salary IDR 5,592,000
Based on the calculation above, the net salary that Andra receives every month is IDR 5,592,000.
b. How to Calculate Net Salary for Non-Permanent Employees
The differentiating factor in how to calculate salaries for permanent and non-permanent employees is the cost of the position. For how to calculate the basic salary, the formula for calculating the basic salary is more or less the same.
Permanent employees must pay position fees of 5% of their total salary, while non-permanent employees do not need to pay it.
Still based on the example of Andra's case with the status of a non-permanent employee, the following is a salary calculation table without deducting position fees.
Salary Income Components Total
Basic salary 5,000,000
Overtime pay 500,000
Fixed allowance 500,000
Total salary received IDR 6,000,000
The deduction component of Fatih's salary does not involve office costs, so there is no need to reduce 5% of his salary, just BPJS contributions and PPh article 21.
Reduction Component Amount
BPJS Contributions 60.000
PPh 21 97.500
Total Expenditure Rp. 157.500
As before, if you have finished calculating the income and deduction components of Andra's salary, then subtract the income value from the deduction value to see how much salary Andra receives per month.
Net Salary Component Total
Total Income 6.000.000
Total Reduction 157.500
Total Net Salary Rp.6.157.500
Based on the calculation above, the net salary that Fatih receives every month is IDR 6,157,500
The calculation method above is a method commonly used to calculate the salaries of permanent and non-permanent employees every month. Then what about part-time employees or employees who only join in the middle of the month?
For this reason, a payroll calculation method was created which is called prorated salary calculation.
c. How to Calculate Net Salary Using the Prorata Method
The prorata method is a method of calculating salaries that is carried out proportionally. Usually this method is based on the number of hours worked or employee work time.
The following are the steps for calculating salary using the prorata method
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Calculate the number of working days in a month
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Calculate the basic salary using the basic salary and allowances formula that has been determined per month by the company
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Calculate hourly wages using the salary formula divided by the number of hours worked
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Calculate total wages using the formula: number of working days in a month x number of hours worked in a day x wages/hour
Case example of how to calculate employee salaries:
Rini is a private employee who has a salary of IDR 10,000,000 per month. Rini works from Monday to Friday, which generally amounts to 23 working days.
However, due to several reasons, Ani was only able to enter for 20 days. How much salary does Ani get?
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Working days and hours: 23 days with 8 working hours in one day.
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Salary for a month: IDR 10,000,000
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(Basic salary = IDR 7,500,000 + Allowances = IDR 2,500.00)
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Hourly salary: Salary/number of days worked in a month
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IDR 10,000,000/184 hours = IDR 54,347
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Wages according to working days: Number of working days a month x number of hours worked a day x hourly wages
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20 days × 8 × 54,347 = IDR 8,695,000
So the salary that Ani receives per month is IDR 8,695,000 per month. This figure does not include BPJS health deductions, BPJS Employment and income tax.
Conclusion
These are some of the commonly used methods for calculating employee net salaries. All of the methods above can be used by companies, depending on the conditions and status of the employees themselves.
