What Is Gross Pay and How Is It Calculated?

When you are employed, all the taxes, deductions and overtime will depend on your gross income. For this reason, you can access salary or hourly paycheck calculator online to calculate. It is a very important thing and this article is created to help you understand more about this concept.

What is gross pay?

Gross pay is the amount paid to an employee before taxes and other deductions are made. This is what the employee and employer agreed will be the pay rate. It is what is in the contract. This is for both salaried and hourly employees. This pay is the amount used to calculate an employee’s salary (for those paid after some time) and wages (for those paid hourly).

How to calculate gross pay

  • Salaried gross pay if paid annual salary

If you are paid after some period, calculating gross pay is easy. Take the amount you are paid per year and divide it by twelve (number of months) or the number of times you are paid per year. For example: If a salaried employee’s annual salary is 80000 dollars and he is paid four times a month. Calculate gross pay for each pay period.

= Amount paid per year ÷ number of times paid per year.

= 80000 ÷ (12×4)

= 1666.67 dollars

  • Hourly gross pay

This is equally simple to compute. You take the number of hours you have worked multiply it by the hourly pay rate. Then add overtime pay. For example: You earn 20dollars per hour and if you work overtime, you earn 25 dollars per hour. You have worked for 10 hours normal time, and 3 hours overtime. Calculating hourly gross pay will be

= (Number of normal hours worked × pay rate) + (Number of overtime hours worked × Overtime pay rate)

= (10×20) + (3×25)

=275 dollars.

  • An easier way of calculating gross pay.

There are so many online salary and hourly paycheck calculators. You do not have to do all this mathematics on your own. Just google gross pay calculator and you will find some.

Importance of gross pay

  • In payroll and payroll taxes.

As we have seen, gross pay is the genesis of all calculations. The calculations are all independent of each other so to calculate you must use the gross pay. These calculations include:

  • Calculating and deducting federal and state taxes.
  • Calculating FICA taxes. This is the social security and Medicare.
  • Calculating all the other benefits and deductions.
  • Calculating overtime pay.

Gross pay is also used for social security maximum calculations. Any additional Medicare taxes are also deducted from the gross pay. This pay is found in the W-2 form. All employees’ gross pay is put on the IRS Form 941 which is the payroll tax form reported quarterly.

  • For loans.

Every lender will look at your gross pay before giving you a loan. Gross pay limits the amount of loan you can receive as it shows how capable you are to pay back the loan. It is used to measure the risk.

You can see that it’s necessary that gross pay e calculated well. You can use a salary or hourly paycheck calculator, depending on your mode of payment to ensure this.

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