Gross Pay

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Gross Pay

What is Gross Pay?

Gross Pay or gross salary is the actual payment made by the employer to pay an employee before any taxes and deductions.

Gross Pay or Gross Salary is the total money, a salaried employee or hourly employee receives after a pay period excluding any type of tax and deductions.

What is deducted from Gross Pay?

Your total amount received per year is your gross pay. It is the sum of the twelve months of your pay in total. In routine practice, gross pay is a larger amount than the net income due to the reason of no deductions. Deductions are some mandatory and others voluntary like benefits and savings etc.

What are mandatory deductions, but not limited to, are mentioned below:    

  • Federal income tax or Federal payroll tax
  • Local income tax or Local payroll tax
  • State income tax or State payroll tax
  • Social security
  • Medicare - FICA - Federal Insurance Contribution Act

What is more, your employment contract might not let you opt from within other mandatory deductions, which may be union dues, your uniform or equipment necessary for the job, pension plans, and anything the employer deems vital as per the company policy. But, it is relevant to keep in mind that it should be mentioned in your employment contract, whether you are an employee or employer, things like that should be taken care of, to avoid the mess at the later stage. But, in routine practices it can be an after announced policy for such deductions, like rules or regulations sometimes change from time to time, in that case, employees are bound to abide by what is updated and employers must communicate such changes timely, at least before making any new deductions, etc.

Your payslips may mention some other deductions like:

  • Health plan
  • Health saving account
  • 401K
  • Flexi saving account
  • Any other benefits as per agreed upon between you and your employer, and that may be from time to time as well

The deductions made from the employee's paycheck are not deductions that are cut from the employee's annual salary on monthly basis for others, those are still yours and are cut for your benefit. As an employee when you select benefits portion options when some certain employment forms filling takes place, you do opt for certain benefits as per the policy of your employer.

On the other hand, employers are to submit the amount to the state or local departments under the unemployment domain for the total good of the country's citizens. It does not return back any financials to the organization but the legal requirements.

The formula for Gross Pay

To calculate gross pay of salary or hourly employee using the following formula,

Gross Pay = Net Pay + Taxes and Deductions

Related: Gross Amounts, Gross Wages, Gross Income