Final answer:
The amount an employee earns before any deductions such as EI, CPP, and income tax withholdings is their gross pay. Deductions cover taxes and social contributions, and the remaining amount after these deductions is referred to as net pay. Understanding the difference between gross and net pay is vital for financial planning.
Step-by-step explanation:
The amount an employee earns before any deductions such as Employment Insurance (EI), Canada Pension Plan (CPP), and income tax withholdings is known as their gross pay. These deductions from an employee's wages typically cover advance payment of income tax, social security contributions, and various insurance programs like unemployment and disability. Employers are also responsible for paying certain taxes based on their employees' wages, which include contributions to social security and insurance programs.
An employee's net pay, on the other hand, is the money they take home after all required taxes and deductions are removed from their gross pay. For example, if your gross pay is $1500 every two weeks, but after all taxes and deductions, you receive $1000, that $1000 is your net pay.
It is important for employees to understand the difference between gross and net pay, especially when budgeting or making financial decisions. Remember that proper maintenance of payroll taxes is essential, as failing to pay these taxes can lead to penalties for both employees and employers.