What is Gross and Net Salary?
Why Don’t We Talk About Net Salary?
In Slovenia, the prevalent income system is gross, meaning that the beneficiary (employee) has the right to income before the deduction of taxes and contributions, which are withheld and paid through tax deductions from the said income.
By law, the payer of income (i.e., the employer) is obligated not to pay the full (gross) amount of income to the beneficiary but to reduce the income by the legally determined amount of taxes and contributions, and then pay it on behalf of and for the account of the beneficiary. The beneficiary directly receives the income reduced by the amount of taxes and contributions (net).
The calculation of mandatory social security contributions, as determined by laws, is carried out by the employer in the tax deduction calculation. The employer calculates, deducts, and pays the social security contributions, for which the worker is the obligee, on behalf of the worker (referring to the obligation of the tax payer for tax deduction in accordance with Article 57 of the ZDavP-2).
Therefore, the obligation to calculate and pay contributions for insured persons employed by an employer based in Slovenia is, in accordance with regulations on contributions, tied to the actual payment of income and is imposed on the employer. The current social security system in Slovenia also does not allow the insured person to freely decide on the amount of contributions they will pay.
The salary, which consists of the basic salary, part of the salary for work performance, and supplements, is expressed in gross terms. When the employer deducts all contributions and advance income tax from the gross salary, we get the net salary, or the amount that is deposited into your account.
Separately, reimbursements related to work are calculated, with the most common being reimbursement for meals and commuting to work. These reimbursements do not fall into either gross or net categories; they are considered reimbursements for work-related expenses according to Article 130 of the ZDR-1. The Regulation on the Tax Treatment of Reimbursements of Costs and Other Income from Employment specifies the amount up to which the reimbursement is not included in the tax base of income from employment.
Details about reimbursements can be found on the pay slip but are shown separately from salary items for which social security contributions and income tax are calculated.
Calculation of Net Salary
In summary, the employee receives into their transaction account:
Net Salary (Gross Salary – Contributions from Gross Salary (Employee Contributions) – Advance Income Tax) + Reimbursements.
What is the employer’s cost for the employee’s salary?
Gross Salary of the Employee + Employer Contributions + Reimbursements.
| PRACTICAL EXAMPLE (for the year 2022) |
| Taking a simple example of an employee with a gross salary of 1,400.00 euros (without allowances, without supplements, with a reimbursement of 37.00 euros for a city card and 7.96 euros reimbursement for lunch per day – assuming 21 working days), the employee receives 976.10 euros net + 204.16 euros reimbursements, a total of 1,180.26 euros in payment. The employer’s cost amounts to 1,829.56 euros. |
The fact is that rarely do two different employees with the same gross salary receive the same net salary since various additions (e.g., seniority allowance) or parts of the salary for work performance are added to the gross base. Also, employees have different allowances (special general allowance for low wages, allowance for dependent family members, etc.).
If we were to talk only about the net salary as the starting point, we would also need to consider how we would then calculate compensations for, for example, sick leave or vacation.
Therefore, when negotiating an employment contract, we always discuss the gross salary. Understanding concepts such as the tax payer, gross base, and allowance are fundamental terms that every employer should know. It is also the responsibility of employees to inform themselves about their income.
In practice, there will be fewer disappointments, and labor and social courts will not have as many labor disputes.
Urška Jerič
Payroll and HR Services