What is Take Home Pay? Definition and How to Calculate

take home pay

As workers and part of the business industry, the term of take home pay is a concept that you must know. In brief, it is the total amount of income that an employee receives.

However, the term is still considered foreign and rarely known among people. Are you one of them? In this article, Clockster will give you insights on what it is and how to calculate take home pay.

What is take home pay

Take Home Pay or abbreviated as THP is a term used to refer to the amount of income received by an employee after tax deductions. Or you can simply say it as the amount of money that an employee can bring home.

In Indonesia, THP is mentioned in the Major Labor Laws of Indonesia Article 1 Paragraph (30) that states

“upah adalah hak pekerja atau buruh yang diterima dan dinyatakan dalam bentuk uang sebagai imbalan dari pengusaha atau pemberi kerja kepada pekerja/ buruh yang ditetapkan dan dibayarkan menurut suatu perjanjian kerja, kesepakatan, atau peraturan perundang-undangan, termasuk tunjangan bagi pekerja/ buruh dan keluarganya atas suatu pekerjaan dan/ atau jasa yang telah atau akan dilakukan.”

The difference between THP and gross income

However, THP often creates misunderstandings in people’s minds. Many of them find it difficult to differentiate this term and gross income. Basically, regular income is the total of all components of salary including basic salary, job and health allowances, transportation and food fees, and many more according to the regulations of each company. Meanwhile,

THP is the total amount of income received after deducting workers’ paid contributions. The value changes every month because it relies on incidental incomes and other deductions according to regulations.

The components of THP

There are several components of THP mentioned in Government Regulation Number 78 of 2015 regarding Remuneration. What are the components?

Regular incomes

Regular income is wages that have been decided and received by employees according to the company’s routine schedule. The components in regular income are:

Basic salaries

The amount of basic salaries will be in accordance with the position of an employee in a particular job. Generally, the nominal base salary is clearly stated in the employment contract at the beginning of recruitment.

Fixed and non-fixed allowance

There are two types of allowances in the components of THP which are fixed and non-fixed allowance. Some examples of fixed allowance are transportation and meal allowances. Meanwhile, the other allowance could be in any form and might be different in every company.

Incidental income

Incidental income also becomes one of the compon. As the name suggests, this income can be obtained at any time depending on certain reasons.
Some examples of incidental income are overtime bonuses. It should also be noted that incidental income is different from the two previous allowances that should be included in the amount of regular income.

Salary deduction

The next component of THP is salary deductions. In addition to receiving salary rights, employees also have the obligation to set aside a percentage of their wages for income tax payments, health contributions, and so on.

How to calculate take home pay

After knowing that THP is the net amount received after some required deductions such as health insurance, you might wonder how to estimate Take Home Pay.

You can use this formula to better understand how much you get on your THP:

THP = (Regular Income + Incidental Income) – (Salary Deduction)

Example of how to calculate take home pay

How do you estimate your THP? For example, you are an employee of a private company who receives a basic salary of IDR 7,000,000 every month. The company you work for also regularly provides a (fixed) meal allowance of IDR 600,000 per month.

In August, you worked with a good performance and could exceed the target set by the company. As such, you received an additional bonus of IDR 2,000,000. On the other hand, there is an income tax of IDR 215,000 and a loan of IDR 425,000 that you should pay. In this case, the amount of your THP will be as follows:

THP = (Regular Income + Incidental Income) – (Salary Deduction) = (7,600,000 + 2,000,000) – (215,000 + 425,000) = 9,600,000 – 640,000 = 8,960,000

Based on the formula above, after adding up the basic salary and fixed allowances then subtracting them from the number of deductions, you will receive the amount of IDR 8,960,000 as your THP.

Now you are well-equipped to estimate Take Home Pay. Make sure that you don’t miss any components in order to avoid misunderstandings between the company and employees.

Aside from giving rights to employees by giving salaries, companies should also monitor their work performance. One solution to achieve that is by monitoring the employee attendance list. Visit Clockster for quick and easy employee attendance management!

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