Gross Pay
What is Gross Pay?
Also known as gross income, gross pay is the total wages that an employee receives before taxes and deductions are withheld. Gross pay or gross salary is typically indicated as the annual pay a worker will make in a given year.
Gross pay can constitute the following:
- Salary
- Hourly wages (pay rate)
- Overtime pay
- Tips
- Bonuses
- Commissions
- PTO
Gross Pay vs. Net Pay: What’s the Difference?
The difference between gross pay and net pay is that net pay represents the actual amount a person receives on their paycheck each period.
In other words, net pay equals gross pay minus the relevant deductions that are made from an employee’s wages. These deductions can include federal, state, and local taxes, as well as contributions for Medicare and Medicaid, elected health insurance plans, and other covered benefits.
Often the gross pay is the amount listed when an employee is hired by an organization or company. For example, if a business promises a new hire a salary of $90,000, the total amount that the employee receives during each pay period—the take-home pay—is never the set salary divided by the number of pay periods in a year. The sum is variable depending on where the employee lives, where the employer is based, and other such factors.
What Factors Impact Gross Pay?
Among the many different factors impacting the gross pay for a given role, a person’s gross annual salary is determined by the responsibilities of the role, the expertise required for the role, the amount that an organization can afford to pay, and the location of the job. Typically, a hiring manager and HR determine gross income for each role.
Additionally, gross income is subject to deductions, including legally required taxes, Social Security payments, and a predetermined amount that an employee has elected for their employer-provided benefits package.
As a result, an individual’s paycheck may “go further” depending on where they live and the benefits that they’ve selected. It is entirely possible that someone’s gross pay could be higher than another’s while their net pay is lower. Employees can use paycheck calculators to more closely identify exactly what this net income will be each time they receive payment for services rendered.
Related Terms: Net Pay, Employee Benefits