Gross salary and net salary are two definitions that often cause confusion among employees. Many believe that the amount of salary indicated in the employment document – the individual employment contract or the appointment order – is the amount they will receive in hand, but this is not the case. In the document, the employer indicates the employee’s gross salary, from which contributions and taxes are deducted.

The Ministry of Labor and Social Protection notes that the difference between the gross salary and the amount of contributions and taxes paid represents the net salary, also called salary payable. It is what the employee actually receives. From the gross salary, the employer deducts the mandatory health assistance insurance premium, which is 9% of the salary, and the 12% income tax.

Income tax is calculated from the taxable income, which is the difference between the gross salary and the amount of the insurance premium and exemptions, which are set by the Government for which no income tax is paid.

According to the Fiscal Code, employees can enjoy several exemptions. There is the standard personal exemption of 2250 lei each month. People who suffered from the Chernobyl disaster get an increased personal exemption of 2625 lei.

Exemptions are granted to the parents and spouses of those who were killed or went missing in action in the War of Independence or in the Afghanistan war.

Then, exemptions of 750 lei a month are granted for dependents, minor children, or retired parents, provided that their annual income does not exceed 11,280 lei. If the dependents have a disability due to a congenital condition or a serious disability, the exemption is 1650 lei per month.

In addition to the gross salary, the employer calculates from the salary fund (for persons employed by individual employment contract, persons in employment under an administrative act or by other types of civil contracts in order to perform works or provide services) and pay mandatory state social insurance contributions. These represent 29% of the sum of salaries and earnings calculated monthly for all employees - for public sector employers and self-managed public authorities/institutions, with the exception of higher education institutions and medical-sanitary institutions; and 24% on the sum of salaries and earnings calculated monthly for employers in the private sector, higher education institutions and medical-sanitary institutions.