What is Gross Pay and How is it Calculated?

Calculating Gross Pay for Salaried and Hourly Employees

Calculating Employee Gross Pay
Calculating Employee Gross Pay. Alina Solovyova-Vincent/Getty Images

What is Gross Pay? 

Gross pay for an employee is the amount used to calculate that employees' wages (for an hourly employee) or salary (for a salaried employees.

For both salaried and hourly employees, the calculation is based on an agreed-upon amount for gross pay. That is, both the employee and employer have agreed that this is the pay rate.The pay rate should be in writing and signed by both employee an employer.

 For hourly employees, that pay rate might be negotiated by a union contract. For salaried employees, that rate might be in an employment contract, or just a pay letter. In each case, the gross pay rate should be agreed to and signed before the employee begins working. 

How to Calculate Gross Pay

 In general, here is how gross pay is calculated:

 To calculate gross pay for salaried employees

  • Start with the employee's annual salary and divide by the number of pay periods in a year. That amount is the employee's gross pay for the pay period. Here is an example, if an employee makes $24,000 a year, and your company pays twice a month, that's 24 pay periods in a year, so the gross pay for each pay period is $1,000.
  • Add any other pay that the employee received, such as reimbursements. Bonuses may be added to the paycheck but they are more commonly paid in a separate check.
  • Subtract any unpaid time off (unusual for a salaried employee).

Salaried employees do not receive overtime pay if their weekly pay is over a specific amount.

Read more about when overtime pay is required for salaried employees

An Example of How to Calculate Gross Pay for a Salaried Employee

A salaried employee has an annual salary of $47,000 a year. The salaried employees at this company are paid on the 15th and 30th of each month (twice a month). The $47,000 is divided by 24 to get $1958.33, which is the gross pay for each pay period. 

To calculate gross pay for hourly employees

  • Take the information on the employee's hours worked from the timesheet or other way you record employee time.
  • Calculate regular pay by multiplying the total hours worked in the pay period (not including overtime hours) times the employee's hourly pay rate.
  • Check to see if the employee has worked any overtime hours. You must pay overtime at a minimum of 1 1/2 times regular hourly pay for any hours worked over 40 hours in a week, and calculate overtime pay.
  • Add any other pay the employee may receive, such as a reimbursement.

An example of how to calculate hourly gross pay:

Here is an example of the hourly employee gross pay calculation:
Let's say an employee is paid $5 an hour and worked 43 hours in a work week and you pay overtime at 1 1/2 times for all hours over 40.

  • First, calculate regular pay: $5 x 40 hours = $200
  • Then, calculate overtime pay $5 x 1.5 x 3 hours = $22.50
  • The total gross pay for the weekly pay period is $222.50

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