Glossary of Human Resources Management and Employee Benefit Terms
The pay an employee receives before taxes and deductions are withheld is known as gross wages. Because gross wages are calculated before deductions, the actual take-home pay (also known as ‘net wages’) of an employee may be significantly less than their gross wage.
Understanding what gross wages mean is important because taxes and deductions are based on a percentage of the employee's gross wages. For employers, also knowing how to calculate the correct amount of federal and state income taxes, Social Security, and Medicare is important to your company, your employees, and the IRS.
If an employee’s withholding is under-withheld, the missing amount will need to be paid over the months ahead. If an employee’s withholding is over-withheld, your employee may request a refund right away or wait until they file their yearly taxes. Either way, a mistake will bring on extra paperwork and take time to correct.
If employees are interested in viewing their gross pay for the year, they can find their gross wage as well as any deductions on their pay stub. Gross wages are usually the largest recorded number near the top of the pay stub.
To find gross wages on a W2, look in Box 1. This amount is the total your employer paid you, including salary, hourly wages, tips, commissions, and bonuses.
The wage an employee is paid before taxes and deductions is their gross salary. Net salary (also called net wage or net pay) is the pay an employee receives in their paycheck after taxes and deductions—or the pay they actually take home in their paycheck.
To calculate the net pay of an employee, you must first calculate gross pay, then subtract any deductions from gross pay to get the net wages of the employee (gross pay - deductions = net pay). This can be quickly calculated with using a net pay calculator.
Gross wages include all of an employee’s pay before taxes and other mandatory and discretionary deductions have been taken out. The majority of an employee's gross wages typically consists of their base pay such as their salary, hourly pay, or tips (for tip-based workers).
Gross wages include:
Piece rate pay
How to calculate gross wages is different depending on whether the employee works full-time or part-time, or whether the employee is salaried or hourly. Employers can calculate gross wages on a quarterly, monthly, weekly, or daily basis—or for any other period of time they desire.
Calculating gross wages for employees is a fairly simple process. Below are different scenarios for calculating gross wages. However, it is probably easiest to use a total gross wages calculator since it can quickly get complicated to calculate the many different types of wages that can come up in any scenario.
How To Calculate Gross Pay for Hourly Workers
For hourly employees, gross wages can be calculated by multiplying the number of hours worked by the employee’s hourly wage. For example, an employee that works part-time at 25 hours per week and receives a wage of $12 per hour would have a gross weekly pay of $300 (25x12=300). A full-time hourly employee at 40 hours per week with the same hourly pay would receive a weekly gross wage of $480 (40x12=480).
If the employee accrues any overtime pay during the week, you must also calculate that as gross wages. In most U.S. states, overtime pay is calculated as time and a half, so if our full-time employee from above worked 5 overtime hours, their overtime pay would equal $90 (5x(12x1.5)). Their total amount of gross pay for the week would equal $570 (480+90=570).
There are states, however, that have more unique overtime calculations. Make sure to understand how all the states where your hourly workers are employed calculate overtime.
How To Calculate Gross Pay for Salaried Workers
Calculating the gross wage for salaried workers is a little different because you start with their annual salary. If you want to determine the gross wages per month, you will simply divide the employee’s annual salary by 12. For example, if the employee makes $55,000 per year and you want to calculate a monthly gross wage, you would divide the total salary by 12. This equals out to a monthly gross wage of approximately $4,583.
Gross Wages Examples
Let’s take a practical look at a gross wages example:
Gerald works at a hospital for $40 an hour, works 40 hours a week, and is paid every two weeks. His gross wages are $3,200 per paycheck, because ($40 X 40 hours) X 2 weeks = $3,200.
Here’s another gross wages example that includes salary, a bonus, and advertising sales:
Anya works for a marketing firm as an influencer. She gets paid an annual salary of $25,000 on a bi-weekly pay structure. During the last pay period, she earned a $500 bonus and $1,000 in advertising sales. Anya’s gross wages are $2,452 on her paycheck, because ($25,000 / 24 pay periods) + ($500 + $1000) = $2,542.
How To Calculate Gross Wages for Unemployment
Unemployment benefits are considered a gross wage (and are taxable) because they partially replace lost wages due to being laid off from a job. Calculating how much is earned is very dependent on which state you are in, so it can be helpful to use a weekly unemployment benefits calculator. This will estimate the correct weekly benefits amount.
As an example, let’s say Julio is an IT specialist in Iowa who has 3 dependents. He earned $100,000 last year ($25,000 per quarter) before he was laid off due to downsizing. According to the calculator, he is eligible for 26 weeks of unemployment benefits at an amount of $676 per week.
This was calculated by:
Using Iowa’s base period (the first four of the last five completed calendar quarters before the week Julio files his claim) for calculating unemployment benefits
Using the highest pay Julio received during that base period
Factoring in Julio’s dependents (varies by state)
Calculating the unemployment percentage
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