A net-of-tax arrangement, commonly implemented through a gross-up calculation, occurs when an employer guarantees that an employee will receive a specific net amount after all taxes and social-security contributions are deducted. To deliver the agreed net, the employer calculates the gross amount that, after applying the relevant marginal tax rates and contribution percentages, results in exactly the promised net. The additional tax cost falls entirely on the employer rather than the employee.
Gross-ups are common in international assignments where the employer pays local taxes on behalf of the assignee, in one-off relocation allowances or bonus payments, and in expatriate packages designed to deliver a net lifestyle cost equal to the employee's home position. Because the grossed-up payment is itself subject to tax, the calculation must iterate: grossing up the tax on the gross-up itself until the residual difference is negligible.
In the Netherlands, an employer who pays an employee's wage tax on their behalf must also gross up that benefit, as the tax payment constitutes taxable income for the employee. The 30% ruling can simplify gross-up calculations for qualifying highly skilled migrants by converting 30% of the gross salary to a tax-free allowance, reducing the effective marginal rate and therefore the gross-up quantum.