# Gross Payment vs Net Payment

## What is Employee Cost?

Employee Cost is the total money a company spends on its human resources. It includes:

## Gross Payment

Gross Payment is the amount actually paid to the worker for work performed before any deductions.

Build-up of Gross Payment:

Step	Component
1	Basic Pay
2	(+) Dearness Allowance (D.A.)
=	Basic + D.A.
3	(+) Other Allowances
4	(+) Bonus / Commission
5	(+) Other cash payments (e.g., Overtime)
=	Gross Payment

## From Gross Payment to Net Wages

From Gross Payment, subtract the following statutory and personal deductions to arrive at Net Wages paid in hand:

= Net Wages paid to worker

## Key distinction

Gross Payment = What the company commits to pay the worker (before deductions).
Net Wages = What the worker actually receives in hand (after deductions).

Note: Employer's contributions to PF/ESI are not part of Gross Payment — they are part of Labour Cost (covered separately).

Worked example

### Example 1

Illustration: A worker's pay structure is:

Basic Pay = ₹20,000
D.A. = ₹4,000
Other Allowance = ₹2,000
Overtime received = ₹1,000
TDS = ₹500; Professional Tax = ₹200; Employee's PF contribution = ₹2,400; Employee's ESI = ₹300

Gross Payment = 20,000 + 4,000 + 2,000 + 1,000 = ₹27,000

Net Wages = 27,000 − 500 − 200 − 2,400 − 300 = ₹23,600

⚠️ Common exam mistakes

Adding employer's contribution to PF/ESI while computing Gross Payment — employer's contribution is part of Labour Cost, not Gross Payment.
Forgetting to subtract employee's PF/ESI contribution while arriving at Net Wages.
Confusing Gross Payment with Labour Cost — they answer two different questions.

Reference:

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