Definition of Gross Pay
Gross pay is the amount an employee is paid before the employer withholds FICA (Social Security and Medicare payroll taxes), income taxes (federal, state, local) if applicable, and other amounts such as wage garnishments, insurance payments, union dues, savings and retirement contributions, etc.
Gross Pay vs Net Pay
Net pay is the amount remaining after payroll taxes and other amounts are deducted from an employee’s gross pay. Net pay is the amount of the employee’s paycheck, which is often referred to as the employee’s “take-home pay” or the amount the employee “cleared”.
How Gross Pay is Calculated
Some employees’ gross pay is determined by multiplying the hours worked times the employee’s hourly pay rate. For instance, if an employee works 40 hours in the workweek and has a $25 per hour pay rate, the employee’s gross pay for the week is $1,000. If the employee works 30 hours in the following week, the employee’s gross pay will be $750 (30 hours X $25).
Some employees’ gross pay is in the form of a salary. Often salaried employees are paid semimonthly or biweekly. For example, if an administrative assistant has an annual gross salary of $48,000 per year, the person’s semimonthly gross pay will be $2,000 ($48,000/24 pay periods). A person with an annual gross salary of $48,000 who is paid biweekly will have a biweekly gross pay of $1,846 ($48,000/26 pay periods).
Gross pay can also include commissions based on sales, pieces produced per hour, bonuses based on achieving a stated goal, etc.
