Gross Salary - what does it mean and how is the salary calculated

Salary is one of the main reasons why people look for jobs at all. Of course, implementation is also useful, but it doesn't always come first. However, despite its outward simplicity, the concept of salary can contain several rather complex terms. For example, gross salary - what is it, is known by far not every potential worker. Therefore, this concept is worth understanding separately. 

What is gross salary?

Of course, it is worth starting from the fact that the topic of salary is always of interest to employees and employers, as it determines material motivation, the standard of living, and a person's opportunities. In the modern world, it is increasingly common to find terms like 'gross salary' and 'net salary' in job advertisements or employment contracts. For many job seekers, these terms sound unclear, although the difference between them is fundamental. A correct understanding of these concepts will help avoid misunderstandings, as job ads most often indicate 'gross salary' - that is, the salary before deductions. In this material, we will consider what this term means, what it consists of, how it differs from 'net salary', how to calculate it correctly, as well as provide examples and tips for employees in Ukraine.

Gross salary – this is the employee's salary before the deduction of taxes, fees, and mandatory contributions. In other words, this is the amount that the company is willing to pay the employee for the completed work, but actually, 'in hand,' he will receive a smaller figure. Gross salary is an important concept, as it is on this basis that taxes and insurance contributions, which go to the budget and social funds, are calculated.

For example, if your employment contract states that your salary is 30,000 UAH gross, then you will receive a smaller amount in your bank account after the accounting department subtracts personal income tax, military levy, and other mandatory payments. Thus, gross salary is a nominal indicator that shows how much money the employer allocates for paying your work before deductions.

Components of gross salary

Gross salary is not limited to just the basic salary. It can include several components:

1. Base rate – a fixed part of the remuneration that is stipulated in the employment contract.

2. Bonuses and premiums – additional payments based on work results, achievement of KPIs, or seasonal incentives.

3. Allowances and extra payments – for example, for work experience, knowledge of a foreign language, night work, or overtime hours.

4. Compensations and benefits – sometimes gross salary includes funds that compensate for transportation, mobile communications, or food expenses.

5. Vacation and sick pay – in some cases, these payments are also included in the total amount.

That is why it is important to always clarify with the employer what exactly is included in gross salary, as one company may include only the rate and bonuses, while another may include a wide range of additional benefits.

Difference between gross and net salary

The main difference between gross and net salary lies in the deductions. Gross – is the 'dirty' salary before taxes, while net – is the 'clean' amount that the employee actually receives.

In Ukraine, standard deductions look like this:

1. PIT (personal income tax) – 18% of the gross salary amount.

2. Military levy – 1.5%.

3. Unified social contribution (USC) is paid by the employer additionally, but for the employee, this is also an important aspect, as these funds go for pension and social insurance.

Thus, if your salary is 20,000 UAH gross, after deductions, you will receive approximately 16,300 UAH net. This difference often causes confusion, so always clarify during the interview what salary is being mentioned – gross or net.

How is it calculated?

The salary calculation starts with the basic gross amount. All taxes and fees are deducted from it. The formula looks approximately like this:

Net salary = Gross salary – (PIT + military levy)

In turn, the company's accounting department additionally charges USC on this amount, which is not deducted from your salary but increases the employer's expenses.

For example: Gross salary = 30,000 UAH. Deductions: PIT: 30,000 × 18% = 5,400 UAH; military levy: 30,000 × 1.5% = 450 UAH; Net salary = 30,000 – (5,400 + 450) = 24,150 UAH.

This calculation allows understanding the real amount that the employee will receive in their account.

Examples of calculation

For a simpler understanding of the calculations:

1. A young specialist receives 15,000 UAH gross. After deductions, she will receive about 12,075 UAH net.

2. A mid-level manager with a salary of 25,000 UAH gross. After paying taxes, his 'clean' income will be 20,125 UAH.

3. An IT specialist with a salary of 60,000 UAH gross. He will receive approximately 48,300 UAH in hand.

The difference can be significant, so a correct understanding of terms helps better plan one’s budget.

What salary is indicated in job postings in Ukraine?

In most cases, job postings in Ukraine specify gross salary. This is related to the fact that employers want to show the actual budget they are willing to allocate for a worker. However, many candidates, especially those who have not previously encountered the terminology, confuse these concepts and expect the specified amount to be the net salary.

Therefore, it is important to always clarify during the interview: 'Is this gross or net?'. Some international companies even explicitly state the term 'gross' in job postings to avoid misunderstandings. At the same time, Ukrainian employers sometimes indicate the 'clean' amount, but this is more of an exception than a rule.

Tips for negotiating salary

To avoid disappointments, it is worth adhering to a few rules:

1. Clarify the type of salary. Always ask if the specified amount is gross or net.

2. Calculate the net income. Use simple online salary calculators to understand in advance how much you will receive.

3. Consider additional bonuses. Some companies offer social packages, medical insurance, or compensations that also affect total income.

4. Be aware of tax changes. The tax system can change, so always check current rates.

5. Maintain an honest dialogue with the employer. If it is crucial for you to receive a certain amount 'net,' discuss it directly during negotiations.

Thus, understanding the concept of gross salary helps avoid misunderstandings, correctly assess vacancies, and approach job selection more consciously.