PAYG and Net Pay
Under Pay As You Go (PAYG), an employer withholds tax from each pay. Net pay is what is left after tax and other deductions such as health insurance, union fees and extra superannuation. This NSW Year 9 Advanced maths subtopic works with payslips and PAYG tables (NESA outcome MA5‑FIN‑C‑01).
You will read PAYG tables, find net pay and deductions as a percentage of gross pay, and work back from net pay to gross pay. You will compare two jobs, see how salary sacrifice into superannuation changes take-home pay, check whether a year's PAYG leads to a refund, and form an equation to find gross pay. It is part of Year 9 Advanced Earning Money.
Every question with a fully worked solution.
- PAYG and Net Pay - Video - The PAYG Income Tax System Watch
Theory
Under Pay As You Go (PAYG), an employer takes tax out of every pay and sends it to the Australian Taxation Office. Net pay is gross pay less PAYG tax and any other deductions. This Year 9 Advanced maths page covers payslips, PAYG tables, deductions as percentages, working back from net pay to gross pay, and how salary sacrifice changes the tax.
Gross pay is the total earned in a pay period before anything is taken out.
PAYG (Pay As You Go) tax is income tax withheld by the employer from each pay, using PAYG withholding tables or calculators. At the end of the year it is checked against the tax actually payable.
Other deductions may include health insurance, union fees, savings plans and salary sacrifice into superannuation.
Net pay (take-home pay) \(=\) gross pay \(-\) all deductions.
The employer's compulsory superannuation contribution is paid on top of the wage into a super fund. It appears on a payslip but is not taken out of gross pay. Salary sacrifice is different: the worker chooses to put part of their own gross pay into super, before tax.
How to work out net pay
- Find the gross pay for the period.
- Read the PAYG tax from the table for that period, or calculate it as instructed.
- List every deduction taken out of gross pay. Leave out the employer's super contribution.
- Subtract the total deductions from the gross pay.
Harder problems
- Percentage of gross pay: divide the deduction (or all deductions together) by gross pay and multiply by \(100\%\).
- Missing deduction: gross \(-\) net \(-\) the known deductions.
- Gross from net: add the deductions back; if tax is a percentage, form an equation in \(g\) (Example 3).
- Salary sacrifice: subtract it before working out tax, then take the tax off what is left (Example 4).
- Comparing jobs: compare net pay over the same period, not gross pay.
- Year-end check: total PAYG for the year compared with tax payable (and Medicare levy) gives a refund or an amount owing.
- PAYG in bands: some simplified tables tax each slice of weekly pay at its own rate, like the yearly tax table; a pay rise in the top band is taxed at the top rate.
(i) Find her net pay.
(ii) What percentage of her gross pay is PAYG tax, correct to one decimal place?
The employer's super is paid on top of the wage into a fund, so it is not a deduction. Only the other three amounts come out of her pay.
| \(\text{deductions}\) | \(=\) | \(331+47.50+11 = \$389.50\) |
| \(\text{(i) net pay}\) | \(=\) | \(1680-389.50 = \mathbf{\$1290.50}\) |
| \(\text{(ii) tax share}\) | \(=\) | \(\dfrac{331}{1680}\times 100\%\) |
| \(\) | \(=\) | \(19.70\ldots\% \approx \mathbf{19.7\%}\) |
(i) the tax withheld over the whole job
(ii) his total net pay.
| Fortnightly earnings | PAYG withheld |
|---|---|
| \(\$1900\) | \(\$289\) |
| \(\$1920\) | \(\$295\) |
| \(\$1940\) | \(\$301\) |
| \(\$1960\) | \(\$307\) |
\(14\) weeks is \(7\) fortnights. The table gives \(\$301\) tax on \(\$1940\) a fortnight.
| \(\text{(i) tax}\) | \(=\) | \(7\times 301 = \mathbf{\$2107}\) |
| \(\text{gross}\) | \(=\) | \(7\times 1940 = \$13\,580\) |
| \(\text{(ii) net}\) | \(=\) | \(13\,580-2107 = \mathbf{\$11\,473}\) |
Match the table's pay period to the pay period in the question before reading it.
Let her gross pay be \(\$g\). Tax is \(0.24g\), so before the fund she keeps \(0.76g\).
| \(g-0.24g-15\) | \(=\) | \(1277\) |
| \(0.76g-15\) | \(=\) | \(1277\) |
| \(0.76g\) | \(=\) | \(1292\) |
| \(g\) | \(=\) | \(1292\div 0.76 = \mathbf{1700}\) |
Her gross pay is \(\$1700\). Check: \(1700-408-15 = \$1277\) ✓
(i) Find his net pay with no salary sacrifice.
(ii) He salary-sacrifices \(8\%\) of his gross pay into super. Find his new net pay.
(iii) By how much does his take-home pay fall?
| \(\text{(i) net}\) | \(=\) | \(2400-0.25\times 2400 = \mathbf{\$1800}\) |
| \(\text{sacrifice}\) | \(=\) | \(0.08\times 2400 = \$192\) |
| \(\text{taxable pay}\) | \(=\) | \(2400-192 = \$2208\) |
| \(\text{(ii) net}\) | \(=\) | \(0.75\times 2208 = \mathbf{\$1656}\) |
| \(\text{(iii) fall}\) | \(=\) | \(1800-1656 = \mathbf{\$144}\) |
He puts \(\$192\) into super but takes home only \(\$144\) less, because the sacrifice comes out before tax and lowers his tax by \(\$48\).
Common pitfalls
Frequently asked questions
What is PAYG tax?
Pay As You Go tax is income tax that an employer takes out of each pay and sends to the Australian Taxation Office, so tax is paid during the year rather than all at once.
What is the difference between gross pay and net pay?
Gross pay is the total earned before deductions. Net pay is what is left after tax and other deductions, the amount paid into the bank account.
Is superannuation taken out of my pay?
The compulsory employer contribution is not; it is paid on top of the wage. Extra super that the worker chooses to salary-sacrifice is taken out of gross pay, before tax.
How do you find gross pay from net pay?
Add all the deductions back to the net pay. If the tax is a percentage of the gross pay, write an equation with the gross pay as the unknown and solve it.
Why does salary sacrifice reduce take-home pay by less than the amount sacrificed?
The sacrificed amount comes out before tax, so the worker pays less tax. The drop in take-home pay is the sacrifice minus the tax saved.