Gross-up
is increasing a payment so the recipient nets a promised amount after taxes: the employer bears the tax on top. Common for relocation packages, tax-equalised assignments and net-salary promises — and more expensive than it looks, because the gross-up itself is taxable, compounding the cost.
Where gross-ups appear — and what they really cost
Typical uses: net-pay guarantees for assignees under tax equalisation, relocation benefits promised ‘tax-free to the employee’, and benefit-in-kind taxes the employer absorbs. The arithmetic is iterative: covering the tax on the tax converges at gross = net ÷ (1 − rate), so a 40% marginal rate turns a EUR 10,000 net promise into ~EUR 16,700 gross cost before employer contributions.
Cross-border, gross-ups inherit the host country’s rates and the assignment’s social-security position — quote them per country, never from home-rate intuition.
FAQ
Should employment contracts promise net salaries?
Avoid it where possible: net promises transfer all tax-rate, family-status and legislative risk to the employer, and complicate every payroll change. Where markets expect net talk (parts of the Gulf and CIS practice), document the gross equivalent and the recalculation mechanism explicitly.
Is a gross-up taxable itself?
Yes — that is the point of the iterative formula: the additional amount is ordinary pay, taxed like the rest. Social contributions may also apply up to ceilings, adding employer cost beyond the tax-on-tax arithmetic.