Gross pay definition
/What is Gross Pay?
Gross pay is the total amount of remuneration paid to an employee, prior to any deductions for taxes or withholdings. The gross pay figure is used to calculate certain benefits, such as sick pay and vacation pay. It is paid out through an employer’s payroll system.
What is Included in Gross Pay?
Gross pay includes all of the following types of compensation:
Wages and salaries (wages are based on an hourly rate, and salaries on an annual rate)
Bonuses
Shift differentials (a small additional amount paid to those working the second or third shift)
Tips
Sick pay
Holiday pay
Gross pay is the total amount of remuneration before taxes and other deductions are removed. If these items are taken out, then the remainder is referred to as net pay. Examples of the types of deductions that may be subtracted from gross pay include social security, Medicare, garnishments, health insurance, dental insurance, life insurance, pension contributions, and charitable contributions.
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Example of Gross Pay
Mr. Smith works 40 hours at an hourly rate of $15, and earns an additional $1 per hour because he is working the second shift. He also works ten hours of overtime at time-and-a-half (which incorporates the $1 shift differential). Therefore, his gross pay is calculated as:
Base wages = 40 hours x $15 = $600
Shift differential = 40 hours x $1 = 40
Overtime = 10 hours x $24 = $240
Gross pay = $880
If (for example) 20% were then deducted from the $880 of gross pay for income taxes, as well as $100 for medical insurance, the net pay would be $604.