Complete Guide: From Gross Pay to Net Pay Explained

Nov 25, 2025

Complete Guide: From Gross Pay to Net Pay Explained

1. What Is Gross Pay?
2. Mandatory Deductions
A. SSS Contribution
B. PhilHealth Contribution
C. Pag-IBIG Contribution
D. Withholding Tax
3. Voluntary Deductions
4. Calculating Net Pay
Net Pay = Gross Pay – (Mandatory Deductions + Withholding Tax + Voluntary Deductions)
DeductionAmount (₱)
SSS875
PhilHealth562.50
Pag-IBIG500
Withholding Tax1,330
Voluntary Deductions500
Total Deductions3,767.50
Net Pay (Take-Home)21,232.50
5. Tips for Understanding and Optimizing Your Net Pay
6. Why This Knowledge Matters

Understanding your salary goes beyond knowing the amount your employer promises to pay. The journey from gross pay to net pay (take-home pay) involves several deductions that can affect your monthly budget.

This complete guide explains every step of the process so you can understand, plan, and verify your earnings.

Gross pay is your total earnings before deductions. It includes:

  • Basic salary

  • Allowances (transportation, meal, housing)

  • Overtime pay

  • Bonuses and commissions

Example: Monthly basic salary ₱25,000 + transportation allowance ₱2,000 + bonus ₱1,000 → Gross pay = ₱28,000

Gross pay represents your full earning potential, but it is not the money you take home.

  • Employee share: 3.5% – 11% of monthly salary credit (MSC)

  • Employer share: 8.5% – 12% of MSC

  • Provides benefits: retirement, disability, maternity, sickness, and loans

  • 4.5% of monthly salary, split between employee and employer

  • Covers hospitalizations, surgeries, maternity, and preventive care

  • 2% of monthly salary, matched by employer

  • Provides housing loans, short-term loans, and long-term savings

  • Calculated based on TRAIN Law 2025 progressive rates

  • Depends on gross annual income and allowances

  • Additional SSS voluntary payments

  • Private insurance premiums

  • Union dues

  • Salary or loan repayments

Voluntary deductions reduce take-home pay but often provide extra security or benefits.

Formula:

Example Calculation:

Monthly gross salary: ₱25,000

This example shows how gross pay of ₱25,000 results in net pay of ₱21,232.50.

  1. Check payslips monthly to ensure accurate deductions

  2. Track contributions: SSS, PhilHealth, and Pag-IBIG should match government records

  3. Maximize non-taxable allowances to reduce taxable income

  4. Plan voluntary contributions according to your financial goals

  5. Use online calculators or spreadsheets to compute net salary quickly

Understanding the flow from gross to net pay allows you to:

  • Budget accurately for living expenses

  • Verify payroll deductions for accuracy

  • Plan for savings and investments

  • Ensure eligibility for government benefits like loans, healthcare, and retirement

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