Gross pay is the amount of money you pay an employee before any deductions are withheld, such as for taxes. It’s the basis for figuring everything from Federal Insurance Contributions Act (FICA) withholdings to overtime wages. Learning how to calculate gross pay is simple; the most important thing is that you understand the types of income included in the total. In short, all earnings are included, even tips and bonuses, but employer contributions and benefits are not.
Need help calculating gross pay for an employee or yourself? Here’s a free gross pay calculator:
Gross Pay Calculation Equations + Examples
Gross pay is the amount you offer employees when hiring plus all additional earnings like overtime, tips, bonuses, or commissions. If computing the annual gross salary, it’s the total wages and earnings for the 12 months in a calendar year. The calculations vary, depending on how employees are paid (such as with a monthly or hourly rate) and the number of pay runs in a year for the below pay periods or pay frequencies.
- Weekly: 52 pay runs
- Biweekly or every two weeks: 26 pay runs
- Semimonthly: 24 pay runs
- Monthly: 12 pay runs
The general formulas to compute gross pay per year are as follows:
Gross annual salary, if paid a monthly rate: Monthly rate × 12 months + total amount of other earnings for the year
Gross annual salary, if paid an hourly rate: (Hourly rate × 40 work hours in a week) × 52 pay runs in a year + total amount of other earnings for the year
If you only know the annual salary amount and other earnings, you can still determine the employee’s gross salary per pay period. The general formulas are:
Pay Periods | Formulas |
Monthly | (Annual salary ÷ 12 pay runs) + other earnings for the pay period |
Semimonthly | (Annual salary ÷ 24 pay runs) + other earnings for the pay period |
Biweekly or Every Two Weeks | (Annual salary ÷ 26 pay runs) + other earnings for the pay period |
Weekly | (Annual salary ÷ 52 pay runs) + other earnings for the pay period |
Expand the headings below for sample calculations. Note that the computations are more complicated than the above formulas given the specific scenarios and data provided.
Boris is a sales rep at Montague Motors. He earns a $40,000 annual salary plus commissions on each sale. He is paid biweekly. During this pay period, he earned $9,400 in commissions and worked 52 hours. His gross pay is $11,067.67.
The formula used to calculate the gross pay for this scenario is:
(Annual salary ÷ Biweekly or every two weeks pay period) + Commissions = Gross pay
or ($40,000 ÷ 24) + $9,400 = $11,067.67
Earning Type | Amount | Gross Pay |
|---|---|---|
Salary for Pay Period | $40,000 ÷ 24 pay periods | $1,666.67 |
Commission | $9,400 | $9,400 |
Total | $11,066.67 |
Now, let’s imagine Boris is a nonexempt salaried employee. This just means he is protected by federal labor laws and must be paid for overtime. However, he’s also a salaried employee and will be paid for a fixed minimum number of work hours each week—in this case, 40. In the past two week or biweekly pay period, Boris worked a total of 92 hours. Twelve of those hours are considered overtime (OT) and should be paid at the time-and-a-half rate.
To start, let’s use the same annual salary and commission details in the previous example. To compute the applicable overtime pay, we need to determine the hourly rate from the annual salary. To calculate hourly rates and overtime pay, we need the following formulas:
Regular work hours per biweekly pay period × 26 pay period = Annual work hours
or (80 × 26) = 2,080 annual work hours
Annual salary ÷ Annual hours = Hourly rate
or ($40,000 ÷ 2,080) = $19.23 hourly rate
(Hourly rate × 1.5 overtime rate) = Overtime rate per hour
or ($19.23 × 1.5) = $28.85 overtime rate per hour
Overtime rate per hour × Overtime hours worked = Overtime pay
or $28.85 × 12 = $346.20 overtime pay
For the gross salary computation, the formula is:
(Hourly rate × Regular work hours) + Overtime pay + Commission = Gross pay
or ($19.23 × 80) + $346.20 + $9,400 = $11,284.60
Earning Type | Hours Worked | Amount | Gross Pay |
|---|---|---|---|
Salary for Pay Period | 80 | $19.23 per hour | $1,538.40 |
Overtime | 12 | $28.85 per hour | $346.20 |
Commission | N/A | $9,400 | $9,400 |
Total | $11,284.60 |
Look at the difference in his pay as a nonexempt salaried employee vs an exempt salaried employee ($11,067 vs $11,285). He worked the same number of hours but would receive considerably more as a nonexempt employee.
Janet works at Tapas House. She earns $10 an hour plus tips and gets a bonus every quarter. During this biweekly pay period, she also worked six hours of overtime at the time-and-a-half rate. This is the last paycheck of the quarter, and the store did well, so she gets a $100 bonus. Her gross pay for the pay period is $990.
To determine the overtime pay, the formula is:
(Hourly rate × 1.5 overtime rate) = Overtime rate per hour
or ($10 × 1.5) = $15 overtime rate per hour
Overtime rate per hour × Overtime hours worked = Overtime pay
or $15 × 6 = $90 overtime pay
Here’s the formula used to calculate the gross pay for this pay period:
(Hourly rate × Regular work hours) + Overtime pay + Bonus = Gross pay
or ($10 × 80) + $90 + $100 = $990
Earning Type | Hours Worked | Rate | Gross Pay |
|---|---|---|---|
Regular (Week 1) | 40 | $10 per hour | $400 |
Regular (Week 2) | 40 | $10 per hour | $400 |
Overtime | 6 | $15 per hour | $90 |
Bonus | N/A | $100 | $100 |
Total | $990 |
Need help on how to find gross pay and the applicable net earnings? Check out our guide on how to calculate payroll.
What’s Included in Gross Pay
In calculating gross pay, it’s important to understand which payroll costs are included in gross pay and which are not.
The employer and employee should agree on gross pay, whether in an employment contract, pay letter, or union agreement. This way, both parties know what to expect as far as payment for work completed in a certain period.
| Included in Gross Pay: | Not Included in Gross Pay: |
|---|---|
| Wages (salary and hourly) | Employer contributions • 401(k) • Flexible spending accounts (FSAs) • Health insurance |
| Tips | |
| Bonuses | |
| Commissions | |
| Paid Time Off | |
| Overtime | |
| Fringe Benefits (Employer-provided cars or flights, memberships to gyms or social clubs, tickets to sporting events, etc.) | |
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Gross Pay vs Net Pay
As we’ve covered, gross pay is the total earnings an employee makes before you take out tax withholdings, FICA taxes, their share of benefits payments, and voluntary contributions such as for a 401(k). For salaried workers, think of it as the amount you offered when hiring. If your employee’s salary is $45,000 a year, that is the gross pay amount. If you pay $30,000 plus commissions, the combination of the two is considered gross pay.
Net pay, on the other hand, is the amount the employees have remaining after all deductions are subtracted; it’s the amount you pay out when you do payroll for the period.
Gross Pay vs Taxable Income
An employee’s gross pay may differ from their taxable income—what you record on a W-2 form and the portion of the employee’s total earnings subject to federal, state, and local taxes. While the Internal Revenue Service (IRS) considers a substantial part of the employee’s earnings as taxable, some are tax-exempt, such as voluntary contributions to 401(k) or flexible spending accounts. Therefore, what is on your employee’s pay stub as gross pay may not be the same as what shows up on Line 1 of Form W-2.
The gross pay amount considered as Social Security wages and subject to the applicable tax may also differ from total gross wages because of deductions like wages paid through employer-sponsored disability insurance or travel reimbursements.
Calculating Gross Pay: Frequently Asked Questions (FAQs)
Gross pay is the total earnings an employee makes before any deductions are taken out from the wages. Meanwhile, net pay is the amount employees receive minus all the deductions, such as taxes.
Common gross pay deductions include FICA and payroll taxes. If employees contribute to a retirement plan, the applicable amounts will also be deducted from their gross wages.
The specific amount varies, depending on the employee’s income bracket and other deductible items (apart from taxes). However, for the second quarter of 2024, full-time wage and salaried employees earned an average of $1,143 per week, according to the US Bureau of Labor Statistics[1].
Bottom Line
It’s vital to understand gross wages because so many other calculations depend on that number, from net (take-home) pay to taxable income. In short, gross wage, which differs from taxable income, includes the total amount you pay an employee, including overtime, commissions, and some fringe benefits.
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