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What Is Gross Pay?

Gross pay is the amount paid before any deductions are withheld.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 September 2014
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Gross pay is the amount of wages or salary that is paid by an employer to an employee. The amount reflects the total amount of pay before any deductions of any type are withheld from the pay. Once the appropriate deductions are completed, the employer presents the remaining amount, known as net pay, to the employee.

To calculate gross pay for hourly employees, the employer will simply multiply the number of hours worked by the agreed upon hourly rate. In the event that the company operates in a country where laws governing overtime pay are involved, the formula will be adjusted to include any additional funds due the employee for hours worked above and beyond the norm. Once the gross payroll is calculated, the employer can move forward with applying any deductions associated with each employee account.

There are a number of different types of deductions that are subtracted from this total amount, the most common of which has to do with taxes. In most countries, employers will deduct national, state, and local taxes from the gross pay earned by each employee. A pay calculator is often used to determine how much must be withheld in terms of taxes for each applicable jurisdiction.

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The deducted funds are forward to the appropriate tax agencies on behalf of the employee, who receives an itemized list of how much tax was withheld for each jurisdiction involved. The list appears on what is known as a pay or check stub, and makes it very easy for the employee to see how much was withheld and subsequently paid to each tax agency.

Along with taxes, health insurance costs may also be deducted. While some employers pay health coverage costs in full, others choose to split the cost with each employee that is enrolled in the plan. A percentage of the monthly premium is withheld by the employer and combined with the employer’s share for the group insurance coverage, then forwarded to the provider.

Other types of withholding may also apply. For example, the employee may opt to have a portion withheld and placed into a retirement or pension plan, or divert a portion of the funds directly into a savings account. In the event the employee has court ordered child support, that amount may also be withheld and sent to the court by the employer. The same is true with any court-ordered garnishments or liens that may have been placed on the employee by a creditor.

It is important to note that people who are classified as independent contractors receive gross pay from their clients. The contractor is responsible for paying taxes and any other obligations from the gross paycheck rather than the client.

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anon135241
Post 4

People use the gross/net distinction outside of pay too, assuming you mean wages or salary for pay. Investment income can be discussed in gross or net terms as well.

Ferenghi
Post 3

@HotFix - That's true.

Most of the time, with salaries anyway, people are talking about gross pay.

HotFix
Post 2

So then clarifying whether someone means gross or net really makes a difference when you're talking about large values.

SauteePan
Post 1

Gross pay means the actual money you made before taxes are taken out and other payments have been taken out. When someone says that they have an annual salary of $75,000 a year in they are referring to their gross annual pay.

A gross to net pay calculator will tell you what your actual net pay is after you figure out your tax bracket. The tax bracket percentages range from 28% to 35% currently meaning that if you are in the 28% tax bracket, 28% of your salary would be removed from your check.

Calculating gross pay is easy because it is the general salary that you have generated before taxes. That is basically what gross pay means.

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