Gross = before expenses/taxes.
Net = after (which, specifically, depends on the context).
Always negotiate your compensation in gross. Always negotiate hourly in hours, salary in years or months (most places prefer the former, but depending on your country it might be customary to discuss in the latter). A multiplication/division by 12 is usually sufficient.
Hourly pay means you work time, you get paid for exactly that time (give or take 15 minutes sometimes, usually it's rounded, often up to the next hour). Payments usually made every two weeks or every month.
Salaries are paid at a fixed frequency, usually monthly - sometimes, in very very rare cases, semiannually or even annually. Don't bother asking for a different pay schedule as it's generally company-wide and very difficult to change, and it also shouldn't affect you if you manage your own money correctly - the amount of money you make on average over time remains the same.
The reason for gross is, as you mention, taxes. Your specific situation affects how much you contribute to your community/country (via taxes), and the percentage/amount usually changes over time as your living situation changes (you get married, have children, get a raise, etc).
Your employer can't possibly know all of this in most cases (namely in the US, but also elsewhere) and also it's not their burden to manage your taxes (again, usually - namely in the US).
Your job is "I do services, you pay me for those services". The company needs to know how much they're paying for your services. How that income breaks down for you is your own deal.
Imagine a case where you're in a high tax bracket because you have a lot of successful side gigs. Your employer, paying net, would thus have to pay you more in order to keep the rate competitive for you, simply because you make more elsewhere. The employer loses out pretty heavily in this case. Just doesn't make much sense to do it that way.
Yes, and to build on your comment regarding the employer's lack of knowledge and control over taxes: Equity comp also means the employee has control over when they get compensated.
Maybe the employee will sell equity as it vests, maybe they'll keep it and sell it all ten years later. These choices will all drastically change the tax situation.
A good employer will work with you as a team to help you realize your financial strategy.
In France (and broadly speaking, in Europe) you are better off negotiating net before taxes.
We have plenty of deductions from our gross that are compulsory, before getting to the net before taxes. It means that the x€ you hear is actually x€*0.6 or less.
Bringing the number down to what actually hits your taxes (and then your bank account) makes the proposal look less grandiose.
Also, its super easy to calc your annual based on hours: just double the hourly rate and thats what you generally gross per year, i.e. $16/hour is ~32,000 per year.
So if you ever wonder, take your $160,000 per year and you are making $80 per hour... so your complaints about salary will diminish.
It's not just state income tax making a big difference, it's also health insurance! The employee contribution towards health insurance premiums has IME ranged from $0 to $10k.
So even in the same state, two different employers paying the same gross salary could mean very different net salaries. Unfortunately, it's also a big pain in my experience to get companies to disclose this information before hiring.
I know in Estonia, it is always after taxes, since tax laws are sufficiently simple that people pay the same percentage.
In Denmark it's always pre-tax, because tax laws are so complicated that not even the tax authority knows how much you'll end up paying, and so we have an "adjustment" after the fact where you'll either get to pay an amount more, or get an amount back.. It's hilariously sad.
People quote pre-tax salaries. The after-tax salary depends not only on the taxing jurisdiction but on the spouse's income if any, since that affects the marginal tax bracket.
In Germany you negotiate the "gross" salary. But certain mandatory insurance payments (healthcare, unemployment, retirement, nursing) are split between employee (subtracted from gross) and employer (added to gross). So the direct cost to the employer is about 20% higher than the "gross" salary.
Whenever after-tax income is discussed, I've seen it clarified as "take-home". If that's not mentioned, then assume salary is gross. This isn't a US-centric thing -- I've never heard of anyone discussing after-tax income as "salary" in the UK, for example.
> Always before, but you should also factor in local taxes and cost of living yourself when evaluating an offer.
I'd also like to stress that, along with taxes, there are also tax benefits in play, which are highly dependent on your personal circumstances and willingness to pursue them, and can also have a limited timespan.
For instance, some European countries offer generous tax benefits to highly skilled professionals willing to relocate which are only applicable for a few years and require the employee to jump through a few hurdles to benefit from them. If we leave it to recruiters to do the tax math, unscrupulous recruiter might use that to create inflated expectations regarding net salary and disposable income.
Taxes are too variable from person to person, so when I talk salary, I talk gross, and in my head I know about what my tax rate will be and I figure accordingly.
Generally before tax, especially in the context of annual salary. When talking about post-tax pay (“take home pay”) the convention in my country at least is to express that in weekly or fortnightly terms.
For salary in my country (Australia) though, the figure usually doesn’t include superannuation (payments into a kind of third party pension fund) which is applied on top (legislated as a compulsory 10% on top of the wage).
Salary discussions are before taxes because your tax situation is highly personal in the US. I just ran some numbers
An unmarried person making $150,000 In San Francisco would pay $37,816 in taxes for a net income of $112,184.
If that same person was married with a non-working spouse the same person would pay only $29,836 in taxes for a net income of $120,164.
This person could also legally reduce their tax burden by contributing to retirement accounts. Let's take the married San Franciscan if they maxed out their 401k contributions they'd pay $25,546 in taxes for a net income of $124,454. If they moved to Texas then they'd pay $25,546 in taxes, or a net of $124,454
Those are just no frills situations with standard deduction, employees can have itemized deductions that reduce their tax burden more.
Here, it'll almost always be pre-tax; it's primarily a US-oriented site, and the US has a very complex personal tax regime (in particular, many, many common deductions) where two people with the same pre-tax income might commonly have a very different post-tax income.
In the US it's always pre tax and generally annual whereas in Europe it's often post tax and monthly in many cases.
I respect the European model but the US model is not going away since taxes are situation dependent and culturally folks have a different attitude about taxes
In Spain, gross is pre-tax and pre-social security (health, unemployement and retirement) but only for the employee side.
The employer needs to pay an additional 25-30% on top of the gross salary for social security benefits but that amount is not included in the gross salary figure.
junon|4 years ago
Always negotiate your compensation in gross. Always negotiate hourly in hours, salary in years or months (most places prefer the former, but depending on your country it might be customary to discuss in the latter). A multiplication/division by 12 is usually sufficient.
Hourly pay means you work time, you get paid for exactly that time (give or take 15 minutes sometimes, usually it's rounded, often up to the next hour). Payments usually made every two weeks or every month.
Salaries are paid at a fixed frequency, usually monthly - sometimes, in very very rare cases, semiannually or even annually. Don't bother asking for a different pay schedule as it's generally company-wide and very difficult to change, and it also shouldn't affect you if you manage your own money correctly - the amount of money you make on average over time remains the same.
The reason for gross is, as you mention, taxes. Your specific situation affects how much you contribute to your community/country (via taxes), and the percentage/amount usually changes over time as your living situation changes (you get married, have children, get a raise, etc).
Your employer can't possibly know all of this in most cases (namely in the US, but also elsewhere) and also it's not their burden to manage your taxes (again, usually - namely in the US).
Your job is "I do services, you pay me for those services". The company needs to know how much they're paying for your services. How that income breaks down for you is your own deal.
Imagine a case where you're in a high tax bracket because you have a lot of successful side gigs. Your employer, paying net, would thus have to pay you more in order to keep the rate competitive for you, simply because you make more elsewhere. The employer loses out pretty heavily in this case. Just doesn't make much sense to do it that way.
throwaway09223|4 years ago
Maybe the employee will sell equity as it vests, maybe they'll keep it and sell it all ten years later. These choices will all drastically change the tax situation.
A good employer will work with you as a team to help you realize your financial strategy.
BrandoElFollito|4 years ago
We have plenty of deductions from our gross that are compulsory, before getting to the net before taxes. It means that the x€ you hear is actually x€*0.6 or less.
Bringing the number down to what actually hits your taxes (and then your bank account) makes the proposal look less grandiose.
samstave|4 years ago
So if you ever wonder, take your $160,000 per year and you are making $80 per hour... so your complaints about salary will diminish.
41209|4 years ago
Everything depends on the person. For example the same 2 people can make exactly the same, but live in 2 different states.
And with state income tax is varying from 10% all the way down to 0%, this choice of locale can make a big difference
Amezarak|4 years ago
So even in the same state, two different employers paying the same gross salary could mean very different net salaries. Unfortunately, it's also a big pain in my experience to get companies to disclose this information before hiring.
dusted|4 years ago
In Denmark it's always pre-tax, because tax laws are so complicated that not even the tax authority knows how much you'll end up paying, and so we have an "adjustment" after the fact where you'll either get to pay an amount more, or get an amount back.. It's hilariously sad.
atonse|4 years ago
That seems like something the US/UK would have so they can place infinite carve outs for special interest groups.
Bostonian|4 years ago
sampo|4 years ago
This is not true, in some countries. In the US it is true.
watt|4 years ago
CodesInChaos|4 years ago
seattle_spring|4 years ago
dboreham|4 years ago
uberman|4 years ago
nuerow|4 years ago
I'd also like to stress that, along with taxes, there are also tax benefits in play, which are highly dependent on your personal circumstances and willingness to pursue them, and can also have a limited timespan.
For instance, some European countries offer generous tax benefits to highly skilled professionals willing to relocate which are only applicable for a few years and require the employee to jump through a few hurdles to benefit from them. If we leave it to recruiters to do the tax math, unscrupulous recruiter might use that to create inflated expectations regarding net salary and disposable income.
CapitalistCartr|4 years ago
stephen_g|4 years ago
For salary in my country (Australia) though, the figure usually doesn’t include superannuation (payments into a kind of third party pension fund) which is applied on top (legislated as a compulsory 10% on top of the wage).
astura|4 years ago
An unmarried person making $150,000 In San Francisco would pay $37,816 in taxes for a net income of $112,184.
If that same person was married with a non-working spouse the same person would pay only $29,836 in taxes for a net income of $120,164.
This person could also legally reduce their tax burden by contributing to retirement accounts. Let's take the married San Franciscan if they maxed out their 401k contributions they'd pay $25,546 in taxes for a net income of $124,454. If they moved to Texas then they'd pay $25,546 in taxes, or a net of $124,454
Those are just no frills situations with standard deduction, employees can have itemized deductions that reduce their tax burden more.
Calculations come from https://smartasset.com/taxes/income-taxes
rsynnott|4 years ago
redwood|4 years ago
I respect the European model but the US model is not going away since taxes are situation dependent and culturally folks have a different attitude about taxes
antaviana|4 years ago
The employer needs to pay an additional 25-30% on top of the gross salary for social security benefits but that amount is not included in the gross salary figure.
samrolken|4 years ago
soco|4 years ago
UseStrict|4 years ago
HardwareLust|4 years ago
There's far too many tax variables to discuss salaries at net level.
metabro|4 years ago
cpach|4 years ago