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Gross salary is the total amount of money an employee earns before any deductions. It includes the basic salary plus any bonuses, allowances, or other earnings. This is the full amount offered in a job contract and forms the base for calculating deductions.
Net salary, also called take-home pay, is the actual amount an employee receives in their account after all deductions. These deductions usually include income tax and pension contributions. Net salary reflects what you can spend each month.
Income tax is the amount of money deducted from your salary and paid to the government. In Ethiopia, this is based on a progressive tax system—meaning the more you earn, the higher percentage you pay. It is calculated monthly based on government-issued tax brackets.
A pension contribution is a mandatory deduction made to support your retirement savings. In Ethiopia, the employee contributes 7% of their gross salary, and the employer adds 11% more on top of that. This system helps secure future income after retirement and applies to both public and private sector workers.
If an employee's gross salary is 10,000 ETB:
- Income tax: based on the tax table (varies)
- Pension (employee): 700 ETB (7%)
- Pension (employer): 1,100 ETB (11%)
- Net salary: Gross – tax – 700