Gross Wages

What Are Gross Wages?

The pay an employee receives before taxes and deductions are withheld is known as gross wages. Because gross wages are calculated before deductions, the actual take-home pay of an employee may be significantly less than their gross wage. Gross wages are calculated differently depending on whether the employee works full-time or part-time, or whether the employee is salaried or hourly.

Employers can calculate gross wages on a quarterly, monthly, weekly, or daily basis—or for any other period of time they desire. Understanding your employee’s gross pay is important because gross wages are necessary for calculating the amount of taxes and deductions that must be withheld—especially if deductions are based on a percentage of the employee's gross wages.

How Do You Calculate Gross Wages?

How an employee's gross wages are calculated depends on whether they are salaried or receive hourly pay. Hourly workers’ gross wages also depend on the number of hours worked.

Calculating Gross Pay for Hourly Workers

For hourly employees, gross wages can be calculated by multiplying the number of hours worked by the employee’s hourly wage. For example, an employee that works part-time at 25 hours per week and receives a wage of $12 per hour would have a gross weekly pay of $300 (25x12=300). A full-time hourly employee at 40 hours per week with the same hourly pay would receive a weekly gross wage of $480 (40x12=480).

If the employee accrues any overtime pay during the week, you must also calculate that as gross wages. In most U.S. states, overtime pay is calculated as time and a half, so if our full-time employee from above worked 5 overtime hours, their overtime pay would equal $90 (5x(12x1.5)). Their total amount of gross pay for the week would equal $570 (480+90=570).

There are states, however, that have more unique overtime calculations. Make sure to understand how all the states where your hourly workers are employed calculate overtime.

Calculating Gross Pay for Salaried Workers

Calculating the gross wage for salaried workers is a little different because you start with their annual salary. If you wanted to determine the gross wages per month, you would simply divide the employee’s annual salary by 12. For example, if the employee makes $55,000 per year and you want to calculate a monthly gross wage, you would divide the total salary by 12. This would equal out to a monthly gross wage of approximately $4,583.

Calculating gross wages for employees is a simple process that doesn’t require any complicated formulas or advanced math skills.

What Is the Difference Between Net and Gross Salary?

The wage an employee is paid before taxes and deductions is their gross salary. Net salary is the pay an employee receives in their paycheck after taxes and deductions—or the pay they actually take home in their paycheck. To calculate the net pay of an employee, you must first calculate gross pay then subtract any deductions from gross pay to get the net wages of the employee (gross pay-deductions=net pay).

What Is Included in Gross Wages?

Gross wages include all of an employee’s pay before taxes and other mandatory and discretionary deductions have been taken out. Gross wages include tips, salaries, hourly wages, overtime, vacation pay, piece rate pay, commissions, bonuses, sick pay, and holiday pay. The majority of an employee's gross wages typically consists of their base pay such as their salary, hourly pay, or tips (for tip-based workers).

Why Is It Important to Understand Gross Wages?

Employee deductions and taxes are generally calculated based on an employee’s gross wages. For employers, knowing how to correctly calculate gross wages is important for calculating mandatory deductions—such as how much in taxes, Social Security, and Medicare you need to withhold from an employee's paycheck.

If employees are interested in viewing their gross pay for the year, they can find their gross wage as well as any deductions on their pay stub. Gross wages are usually the largest recorded number near the top of the pay stub.

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