Posted by The TaxAdvocate Group, LLC

How To Calculate The Gross Pay Of Your Employees

How To Calculate The Gross Pay Of Your Employees

An employee's gross salary is the amount of salary or wages before the tax or deduction is deducted and is the starting point for other calculations. These calculations are independent of each other and may include:

  • Calculating overtime pay for hourly employees (and some employees)

  • Calculating and withholding federal and state income taxes

  • Withholding and calculating of FICA taxes (social security and health insurance)

  • Calculating other deductions and benefits

For those who are already working, it is especially important to know how the gross salary works. Learn more about gross payout to understand compensation and potential tax liabilities better.


What is gross pay?

The gross payment is the total amount an employee receives before taxes or deductions, such as contributions to the retirement account, are deducted from wages. All other calculations regarding employee wages, overtime, payroll deductions, and deductions are based on gross wages. For employees and hourly workers, the calculation is based on an agreed payment amount. Payment fees must be written and signed by the employee and the employer.

For hourly employees, this pay rate could be negotiated within the framework of a union contract; for employees, this can be an employment contract or a letter of payment. In any case, the gross salary must be agreed upon and signed before the employee can start working.


Gross salary component

The gross pay includes the following:

  • Bonuses

  • Commissions

  • Holiday Pay

  • Piece pay rate 

  • Salaries (based on an hourly rate) and wages (based on an annual rate)

  • Shift differentials

  • Sick Pay 

  • Vacation Pay

Whether it is an hourly or annual rate, the calculation depends on the amount agreed between the employer and the employee. The amount, also known as the rate of pay, must be agreed upon in writing before starting the employment relationship.


How is the gross salary calculated?

The gross hourly wage is calculated by multiplying the number of hours worked in the wage period by the hourly wage. Hours worked may include waiting time, length of stay, breaks and lunch breaks, travel time, overtime, and training sessions. Employees' gross salary is calculated by dividing the employee's total annual salary by the number of pay periods in a year.


How gross wages work

For an employee who earns per hour, suppose an employee receives $20 per hour, works 43 hours per workweek, and overtime pays $20 for all hours over 50. It would help if you did the following: 

  • Calculate the normal payment ($20 x 50 hours = $1000)

  • Calculate overtime pay ($20 x $3 = $60)

  • Add them together

In this scenario, the employee's gross salary would be $1060 per week. An employee whose annual salary is $65,000 paid biweekly divides $65,000 by 24 (the number of pay periods in a year) to get $2,708.33, the gross salary for each pay period.

The net salary is the employee's net salary. Take-home pay is equal to gross pay, with fewer withholdings and deductions.


Calculating gross pay for an hourly employee

To get the gross hourly wage, multiply the number of hours worked during the pay period by the hourly wage. In particular:

  • Obtain the employee's timesheet or attendance record to determine the number of hours worked during the pay period.

  • Multiply the total number of hours worked by the hourly rate.

  • If the employee worked overtime, be sure to include the overtime in gross pay.

  • Please note that other benefits that may be taxable for the employee are not included in the gross payment.


Calculation of gross salary of employees

To calculate employees' gross salary with an annual rate, divide the total annual payment amount by the number of pay periods per year. For example, if the employee's annual salary is $12,000 and 24 pay periods in a year, his gross salary per period is $500. Additional payments or benefits must be added.


Gross salary limitations

The Social Security wage amount for the FICA tax on an employee's W-2 form may differ from the total gross wages and taxable wages. Deductions affecting FICA wages include:

  • Employee insurance

  • Family members under the age of 18 (21 for household workers)

  • Reimbursement of employee travel expenses if they fall within the standard daily or kilometer values.

  • Some additional fringe payment

  • The salary paid to a worker through employer-sponsored disability insurance.


Summary

  • All other tax offsets and calculations start with the gross payment.

  • For hourly employees, hours worked may include waiting time, length of stay, breaks, travel time, overtime, and training.

  • Gross salary is the amount of an employee's salary or wages before any tax deduction or deduction.

  • Hourly employees must be paid more than 40 hours per week.

  • The gross payment may differ from the taxable salary.


FOR MORE INFORMATION ON HOW THE TAXADVOCATE GROUP, LLC. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.

The TaxAdvocate Group, LLC
Contact Member