What Is Gross Pay? Difference Between Gross Pay & Net Pay

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Pay is an amount which you receive from your employer monthly, weekly or yearly.

Gross pay is a basic monthly or yearly payment which you get before any deductions such as taxes, voluntary or mandatory statutory deductions.

This is the starting point for your salary calculation.

All the adjustments are made on your gross pay.

We are here to help you in understanding your gross and net pay.

Read Also : What is a Six Figure Salary, How You Can Earn?

What Is Gross Pay

For an individual, it’s their total pay received by them from their employees before any taxes or deductions for the time they worked.

This pay may vary from person to person depending on their skills and competence.

Skilled and semi-skilled workers get their basic pay on the basis of the hours they worked.

Gross Income also includes overtime, bonuses or reimbursements if any from the employer.

Gross pay vs net pay

How To Calculate Gross Pay

Every employer pay a gross amount to each of his employees at the end of a period.

Gross Income is the amount which includes the total income of an employee, before taxes.

For calculating gross salary, it includes income from all sources of an employee along with gross salary.

How Do I Calculate Gross Pay For Salaried Employee ?

Do you want to know how your employer calculates your gross pay?

This is the amount which you have agreed at the time of accepting employment.

In order to calculate your gross earnings, you should know your gross annual pay and the numbers of pay periods in a year.

Here by using these simple steps you can calculate your gross pay:

  • Firstly, know your pay structure, whether your employer pay you weekly, monthly, half yearly or yearly.
  • Then, take your annual salary and divide it by the number of pay periods within a year.
  • The amount you get by diving is your gross income.

For example:

An employee earns $30,000 per annum and having a monthly pay that is he/she gets his/her pay on a monthly basis. So what is their gross pay?

In this case, just divide the earnings with the number of months he/she served the company.

ANNUAL SALARY / PAY PERIOD = GROSS PAY       30,000/12 = $2500

How Do I Calculate Gross Pay For Hourly Employee ?

Are you a worker, who get their pay on an hourly basis?

Gross pay also includes any additional income, such as overtime.

An employer calculates the gross earnings amount by multiplying the number of hours worked by pay rate.

If you want to calculate your gross pay, then follow these steps:

  • Firstly, calculate the number of hours you put in during a year.
  • Determine the pay rate that is the total amount of money earned including any overtime income, if any.
  • Then simply multiply the numbers of hours worked by the amount earned per hour.

GROSS PAY = EMPLOYEE’S HOURLY RATE * HOURS WORKED

For example:

If an individual worked for 20 hours and earned $10 per hour, then his/her gross income will be $200.

Gross Pay YTD

YTD is a year to date payroll.

This is the amount of money company has spent on employee payroll from the beginning of fiscal or calendar year to current date.

For YTD calculation employer should consider the employee’s annual gross income before any deductions.

YTD starts from the first day of the fiscal year and ends at the current date, but before the end of the year.

This calculation helps companies in financial reporting, comparing data, finding returns on portfolio and analyzing business trends.

Gross Pay vs Net Pay

Gross pay is the total amount you received from your employer as a salary or hourly wages.

This is the total money you receive before any taxes and deductions.

For example, if your employer pays you $25 per hour and your total working hour is 50 during the pay period, then your gross income will be $1250.

Net pay is the total amount of money that you receive from your employer after subtracting all taxes and deductions.

This is the final amount in your paycheck, which get deposited into your bank account.

Net pay = Gross pay (including all income) – Taxes and Deductions 

Frequently Asked Questions

Which Type Of Decision Is Calculating Gross Pay For Hourly Workers?

Structured decision is used by an employer in calculating the gross earnings for hourly workers.In this, payment to the workers is done on the basis of structure.

How Are Hourly And Salaried Gross Pay Is Calculated?

In order to calculate gross income for an hourly employee,

You need to know their hourly rate and number of hours they worked.

And any other income in their basic pay, such as overtime, tips or commissions.

For calculating gross pay, just multiply their hourly rate with total pay.

And for employee overtime pay, simply multiply their overtime hours by their overtime rate.

To calculate gross pay for salaried employees,

First, find out number of pay periods in a year and total annual salary.

Then just divide the annual salary by total numbers of payroll periods.

How To Calculate Gross Pay With Overtime?

Overtime refers to an extra hours worked by an employee as compared to their normal scheduled hours.

Every company pays for overtime, which may vary from company to company and also number of overtime hours.

Every hourly wage employee gets this overtime pay.

An employee can get both their gross pay as well as overtime pay.

This can be calculated by multiplying the overtime rate with the number of hours an employee worked overtime.

For example:      

An employee’s regular wage is $10 per hour and he worked for 50 hours a week, and 10 additional hour for $15 an hour.

This 10 additional hour is overtime done by an employee for which he will get $15 per hour.

So, his total gross pay will be:

$500 for his regular pay + $150 for his overtime pay.

What Is The Relationship Between Gross Pay And Net Pay?

Net pay is calculated from gross pay.

Gross income is an amount received by an employee before and deductions and taxes.

If we deduct taxes and deductions from gross amount we will get Net pay.

Gross pay (including all income) = Net pay + deductions and taxes

Net pay = Gross pay (including all income) – deductions and taxes

What Is Gross Annual Income?

Knowing your gross annual income is important for your financial decisions.

This is the amount of money made by an individual during a fiscal year before any deductions.

Your gross annual income includes:

  • Wages
  • Salaries
  • Overtime pay
  • Commission, bonus
  • Income from investments

By knowing your accurate annual income you will be able to do long term financial planning.

This will also help you in making accurate budget.

Help you in paying and planning your financial obligations like in applying for a new home loan or car loan.

CONCLUSION:

Every company needs to earn a sufficient amount of profits so that company can pay salaries, bonus or commission to their employees.

Employer while making payment to their employees calculates their gross and net pay, so that every individual can get an accurate amount of pay.

REFERENCES

https://www.glassdoor.com/blog/guide/annual-income/

https://corporatefinanceinstitute.com/resources/knowledge/accounting/annual-income/

https://mint.intuit.com/blog/real-money-talk/what-is-annual-income-765/

https://www.zippia.com/advice/what-is-annual-income/

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