Gross Wages

Search topics
glossary image

Gross Wages

What do gross wages mean?

Gross wages are earnings before payroll withholding taxes and other deductions are taken into account. The sums received by hourly workers are sometimes referred to as gross pay. Gross wages, on the other hand, are frequently used to refer to all types of taxable remuneration, such as wages, salaries, gratuities, commissions, bonuses, etc.

Before taxes and other deductions are deducted from an employee's paycheck, their total earnings are known as their "gross wages." The amount earned is determined by the employee’s salary rate and employment status. If you are a salaried employee, your gross wage is your yearly salary.

The number of hours worked multiplied by the hourly wage is how an hourly worker calculates their gross pay. Your pay stub will show your gross compensation. It ought to be the highest number. To examine the difference between your take-home pay and your gross pay, you can also view the taxes and deductions made from your paycheck.

The amount an employee receives during a pay period before taxes and other payroll deductions is known as gross wages, sometimes known as gross pay. The hourly rate or compensation that is stated on a job offer letter is used to compute it. When processing payroll, the determination of gross wages is the first stage.

The next stage is for your payroll software to determine tax withholdings and contributions to health and retirement plans. Your income statement will list gross wages as an expense, typically under an account labeled "wages expense" or "salaries expense."

Gross wages vs. net wages

The terms "gross wages" and "net wages," which sound similar, are frequently used when talking about payroll and compensation. After deductions, the employee's net pay is their gross pay. Employees see this amount on their pay stubs after federal, state, and local income taxes, as well as any premiums or contributions for any benefits, have been deducted. Because of this, net wages are also sometimes referred to as take-home pay.

  • Gross wages: The compensation that includes all benefits and allowances is known as the gross wage. The sum is unadjusted for taxes. This covers transportation costs, HRA, and medical expenses.
  • Net wages: It is the amount an employee receives after all withholdings, such as income tax, retirement contributions, professional taxes, and so forth.

Once more, an employee's gross wages are their pay before any tax withholdings or deductions. In contrast, net wages, often known as net pay, refer to an employee's earnings after taxes and other withholdings. Take-home pay is another name for this.

You must subtract taxes (such as Social Security, Medicare, and federal income taxes), pre-and post-tax deductions, and other contributions to determine net pay. To get an employee's net pay, you may need to subtract certain items from their gross pay.

Your employees' gross salary serves as the basis for processing payroll. You deduct employee tax withholding and non-tax deductions from that sum. Your employees' net pay the sum of their paychecks remains. An employer must withhold a portion of your employee’s wages and pay them to the appropriate federal, state, and local taxing bodies as the employer. Employer taxes are another thing you must pay, but they are not deducted from the wages of your staff.

Retirement and health plan contributions, fringe perks, and wage garnishment are examples of non-taxable deductions. View our payroll deductions guide for small businesses. When establishing your annual business budget, use gross wages. The whole picture of the expense of hiring staff is revealed when gross wages are added to your labor burden, which also includes employer-paid payroll taxes and benefits.

How do you calculate gross wages?

Depending on whether an employee is a full-time employee, part-time employee, or hourly employee, there are multiple ways to compute gross pay. Gross pay can be paid to an employee by the employer based on the pay schedule an organization follow,

  • Monthly
  • Semi-monthly
  • Weekly
  • Bi-weekly

Calculating gross wages for employees is a fairly simple process. The many possibilities for computing gross wages are listed below. However, since it can quickly become difficult to compute the several distinct types of salaries that can arise in each scenario, it is usually preferable to use a total gross wages calculator.

You must divide the annual income of salaried employees by the number of pay periods in the year to get their gross wages. For instance, there will be 24 pay periods if your business pays employees twice per month. There would be 26 pay periods if your business pays its employees once every two weeks. If you pay workers monthly, there will be 12 pay periods. You can determine the gross earnings for each check sent to your salaried staff based on your schedule for pay periods.

Whether you are a salaried employee or an hourly worker will affect how you compute gross compensation. This information might help small business managers decide how much to pay their personnel. You can keep track of how much should be deducted from your gross revenue if you have employees.

How gross wages are reported?

The gross salaries that the employees earned (and the employer incurred) during the accounting period will be reported on the employer's financial statements using the accrual basis of accounting. The financial statements of the employer will report gross salaries based on the sums that were paid to the employees during the accounting period [under the cash basis of accounting]. The amount of the employee's gross earnings paid during the calendar year is what the employer reports to the Internal Revenue Service on Form W-2, the employee's Wage, and Tax Statement.

Gross Pay vs Taxable Income

The gross pay of an employee could not equal their taxable income (what you record on a W-2 form). Some income is deemed to be exempt from income tax by the IRS, including voluntary contributions to 401(k) or flexible spending accounts. As a result, the gross pay shown on your employee's pay stub may differ from the amount that appears on Line 1 of Form W-2.

Due to deductions like those made for trip reimbursements or earnings provided through employer-sponsored disability insurance, the amount of Social Security wages may also differ from total gross income.

Understanding gross wages is essential because so many computations, including those determining net (take-home) pay and taxable income, rely on that figure. In essence, the total amount you pay an employee, including overtime pay, commissions, and some fringe perks, constitutes their gross wage, which is distinct from their taxable income.

Related: Gross Amounts, Gross Pay, Gross Income