How to Calculate Gross Wages: Everything Employers Need to Know

Gross wage is the amount of money you pay to an employee before any deductions are deducted, such as for tax purposes. This is the basis for calculat

Everything Employers Need To Know in 2022
A guide to Statutory Sick Pay for employers
How To Do Payroll in North Carolina: Detailed Guide for Employers

This post may contain affiliate links, which means that I may earn a commission if you click on the link & sign-up or make a purchase. You will NOT be charged extra for using the link, but it goes a long way in supporting this blog. I only recommend products or services that I have personally used or believe will add value to my readers.

Gross wage is the amount of money you pay to an employee before any deductions are deducted, such as for tax purposes. This is the basis for calculating everything from FICA deductions to overtime pay. Learning how to calculate gross wages is simple; the most important thing is that you understand the type of income that is included in the total. In short, all earnings are included, even tips and bonuses, but employer contributions and benefits are not.

Examples of calculation of gross wage

For salaried employees, gross pay is the amount you offer them when you hire – for example, $ 45,000 – plus any additional earnings such as bonuses or commissions. If the annual gross salary is calculated, it is the total. When you determine the gross salary for each salary check, you divide the salary by the number of salary checks and then add any commissions, bonuses or extra income earned during that pay period.

  • Weekly: share by 52
  • Fortnightly: part by 26
  • Bimonthly: share by 24
  • Monthly: divided by 12

For hourly employees, gross pay equals the hourly rate times the number of hours worked in a pay period, plus additional sources of income such as tips, overtime or commission.

Expand the headings below for calculations, for example.

Janet works at Tapas House. She earns $ 10 an hour plus tips and gets a bonus every quarter. This bi-weekly pay period she also worked six hours overtime at the time-and-a-half rate. This is the last paycheck of the term, and the store did well, so she’s getting a $ 100 bonus.

Therefore, her gross salary for the pay period is $ 990.

Boris is a sales representative at Montague Motors. He earns a $ 40,000 salary plus commissions on each sale. He is paid fortnightly. During this pay period, he earned $ 9,400 in commission and worked 52 hours. His gross salary is $ 11,067.67.

Let us now imagine that Boris is a non-exempt employee. It just means he is protected by federal labor laws and must be paid for overtime. However, he is also a salaried employee and will be paid for a fixed minimum number of working hours each week — in this case, 40.

By way of illustration, we use the same salary, $ 40,000 per year, but divide it by the hourly rate, $ 19.23 per hour (40 hours per week x 52 weeks = 2,080 annual hours; $ 40,000 salary / 2,080 annual hours = $ 19 , 23 hourly rate).

Boris has worked 92 hours in the past two weeks. Twelve of those hours (92-80 = 12) are considered overtime (OT) and must be paid at the time-and-a-half rate. In this case, the OT rate will be $ 28.85 per hour ($ 19.23 standard hourly rate x 1.5 OT rate = $ 28.85).

We had to add Boris’s regular and OT payment and commission to find total gross wages. Look at the difference in his salary as a non-exempt salary employee versus an exempt salary employee ($ 11,067 vs $ 11,285). He worked the same number of hours, but would receive significantly more than a non-exempt employee.

What is included in gross wage

It is important to understand which payroll costs are included in gross wages and which are not.

The employer and employee must agree on gross salary, whether in an employment contract, payslip or trade union agreements. This way both parties know what to expect as far as payment for work is completed in a certain period of time.

Gross wage vs net wage

As we have covered, gross wage is the total earnings an employee makes before taking out tax deductions, FICA taxes, their share of benefit payments and voluntary contributions as for a 401 (k). For salary workers, think of it as the amount you offered when you hired. If your employee’s salary is $ 45,000 a year, that’s the gross wage amount. If you pay $ 30,000 plus commission, the combination of the two is considered gross pay.

Net payment is the amount the employees have left after all deductions have been deducted; this is the amount you pay out when you make payroll for the period.

Gross wage vs taxable income

An employee’s gross salary may differ from their taxable income (which you record on a W-2 form). The IRS considers some income tax exemptions, such as voluntary contributions to 401 (k) or flexible spending accounts. Therefore, what appears on your employee’s pay slip as gross pay may not be the same as what appears on line 1 of Form W-2.

The amount of Social Security wages can also differ from total gross wages due to deductions such as wages paid through employer-sponsored disability insurance or travel reimbursements.

Bottom Line

It is essential to understand gross wages, because so many other calculations depend on that number, from net (home) payment to taxable income. In short, gross pay, which differs from taxable income, includes the total amount you pay to an employee, including overtime, commissions and some fringe benefits. However, there are some exceptions.


    error: Content is protected !!