Show FAQ Looking for a faster, more accurate way to calculate pay? Want more exclusive business insights like this delivered to your inbox?Subscribe now Gross pay is what employees earn before taxes, benefits and other payroll deductions are withheld from their wages. The amount remaining after all withholdings are accounted for is net pay or take-home pay. Employers who familiarize themselves with these two terms are often better equipped to negotiate salaries with workers and run payroll effectively. What is gross pay?As previously mentioned, gross pay is earned wages before payroll deductions. Employers use this figure when discussing compensation with employees, i.e. $60,000 per year or $25 per hour. Gross pay is also usually referenced on federal and state income tax brackets. Calculating gross payThe method for calculating gross wages largely depends on how the employee is paid. For salaried employees, gross pay is equal to their annual salary divided by the number of pay periods in a year (see chart below). So, if someone makes $48,000 per year and is paid monthly, the gross pay will be $4,000.
To calculate gross pay for hourly workers, multiply the hourly rate by the hours worked during a pay period. For example, a part-time employee who works 35 hours at $12 per hour will have a gross pay of $420. Overtime rates must also be accounted for, if applicable. Calculating gross incomeTo calculate gross income, multiply the employee’s gross pay by the number of pay periods (see chart above). For instance, if someone is paid $900 per week and works every week in a year, the gross income would be $46,800 per year. Net payThe compensation that employees get to take home depends on a variety of payroll deductions, some of which may be voluntary, whereas others are mandatory. What affects net pay?
Calculating net payWhen calculating net pay, employers and HR professionals generally follow these basic steps:
This guide is intended to be used as a starting point in analyzing an employer’s payroll obligations and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services. Get exclusive business insights delivered straight to your inbox. Subscribe Now What is it called when an employee is paid?Remuneration is the total compensation received by an employee. It includes not only base salary but any bonuses, commission payments, overtime pay, or other financial benefits that an employee receives from an employer.
What is a payment made by an employer to an employee?Wages. Wages are the compensation employers pay their employees in exchange for work. This payment can be either a fixed amount per task or an hourly or daily rate.
What does it mean when you are receiving a salary?A salary is the money that someone is paid each month by their employer, especially when they are in a profession such as teaching, law, or medicine.
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