When you hire staff or manage payroll, two figures appear constantly: gross salary and net salary. They sound similar, but they represent very different amounts—and confusing the two can lead to payroll errors, compliance problems, and unhappy employees.

What is Gross Salary?

Gross salary is the total amount you agree to pay an employee before any deductions. It includes:

  • Basic pay
  • Allowances (housing, transport, meal, etc.)
  • Bonuses and incentives
  • Overtime
  • Any other cash benefits

This is the figure you advertise in job postings and agree to in employment contracts. If you offer a salary of 100,000 rupees, that is the gross figure.

What is Net Salary?

Net salary is the actual amount your employee receives in their bank account after all deductions are removed. In Pakistan, these deductions typically include:

  • Income tax (Federal Board of Revenue, or FBR)
  • EOBI contributions (Employees' Old Age Benefits Institution) – currently 5% of gross salary
  • Workplace insurance or other statutory contributions
  • Loan repayments or court orders (if applicable)
  • Employee healthcare or pension schemes (if offered)

The net salary is always less than the gross—sometimes significantly so.

A Practical Example

Consider an employee with a gross salary of 80,000 rupees:

  • Income tax owed: ~8,000 rupees (varies by tax bracket and personal allowance)
  • EOBI deduction (5%): ~4,000 rupees
  • Net salary received: ~68,000 rupees

In this case, the employee takes home 68,000 rupees, even though the company committed to paying 80,000 rupees.

Why the Difference Matters

For employees: Net salary determines actual household income. They need to budget on what they receive, not what was promised. Many new workers are surprised by the difference and feel misled—so clear communication about deductions is crucial.

For employers: You must calculate and remit tax and EOBI correctly to the FBR and EOBI authorities. Late or incorrect submissions result in penalties and reputational damage. You are legally responsible for withholding employee income tax and paying both the employer and employee portions of EOBI.

For accountants: The two figures affect different records. Gross salary appears in profit-and-loss statements and cost budgets. Net salary is what you actually pay out. Statutory deductions become liabilities until remitted to government agencies.

Employer-Side Deductions

It is worth noting that employers also pay contributions on top of gross salary—for example, the employer portion of EOBI (typically around 5% as well, paid by the company, not deducted from the employee). These are costs to the business but do not appear in the employee's net salary.

Staying Compliant in Pakistan

Accurate distinction between gross and net salary is fundamental to Pakistan payroll compliance. Mistakes in calculation or remittance invite FBR scrutiny and EOBI penalties. Payroll software that automates tax withholding and statutory contributions—such as PayTime—removes manual error and ensures you meet deadlines.

Key Takeaway

When budgeting wages, always plan for gross salary. When communicating take-home pay to staff, always quote net. Keep the two separate in your records, and ensure your payroll system correctly calculates all statutory deductions. Clear internal process and compliant software protect both your business and your team.