How To Calculate Gross Pay (With Formulas and Examples)
Updated July 31, 2023
Employers determine the amount of gross pay each employee earns when they set the employee’s salary. However, gross pay also includes additional sources of income, such as overtime pay and bonuses. For this reason, calculating gross pay becomes more complicated when there are multiple sources of compensation, but there are formulas that can help you calculate gross pay easily.
In this article, we discuss what gross pay is and how to calculate gross pay for both hourly and salaried employees, and we provide formulas and examples.
What is gross pay?
Gross pay is the total amount of money an employee earns for time worked. It includes the full amount of pay before any taxes or deductions. Gross pay also includes any overtime, bonuses or reimbursements from an employer on top of regular hourly or salary pay. For example, if an employer offers you a sales position with a base salary of $50,000 plus a bonus of $2,500 f, your gross income for the year would be $52,500.
Is gross pay the same as W-2 pay?
Gross pay represents the full amount paid to an employee while a W-2 determines taxable wages. Employers determine taxable wages by deducting pre-taxes. Examples of such deductions include retirement plan contributions, flexible spending accounts and health insurance premiums.
For example, if an employee makes $50,000 per year, but contributes $5,000 to their 401k, then the W-2 only reports $45,000 in earnings.
How to calculate gross pay for hourly wages in one pay period
To determine gross pay, multiply the number of hours worked by the pay rate. Also, include any additional income earned, such as overtime.
The following steps show how to calculate gross pay for hourly wages:
Determine the actual number of hours worked.
Multiply the number of hours worked by the hourly wage.
If there is overtime, multiply the number of overtime hours worked by the overtime pay rate.
Add regular pay and overtime pay together to find the gross pay for that pay period.
Example of gross pay for an hourly employee
If an individual worked 40 hours in a given period and earned $20 per hour, the calculation would be:
Hours worked in pay period x hourly pay rate = gross pay per pay period
40 hours x $20 per hour = $800 gross pay per pay period
Federal law requires overtime to be paid at a minimum of one and a half times your regular salary. Overtime is also calculated in different ways per state.
For instance, some states consider any hours worked over 8 per day to be overtime, while other states consider any hours worked over 40 per work as overtime. So you might work a 10-hour day in one state and earn 2 hours of overtime, while in another state you would not earn any overtime unless you worked more than 40 hours total for the whole week. Always check your local state law requirements for more information.
Example of gross pay with overtime for an hourly employee
Using our example above, here is how we would calculate gross pay that takes into account overtime pay.
If an employee worked 40 regular hours and 10 overtime hours in one week, with a regular pay rate of $20 per hour, the calculation would look as follows:
40 regular hours x $20 per hour (regular pay) = $800
10 overtime hours x $30 per hour (regular pay x 1.5) = $300
$800 (regular pay) + $300 (overtime pay) = $1,100 gross pay for the pay period
How to calculate gross pay for salaried employees
To calculate gross pay for a salaried employee, take their total annual salary and divide it by the number of pay periods within the year. If a business pays its employees once a week, then you would have 52 pay periods in a year.
Annual salary/number of pay periods = gross pay per pay period
Salary pay example
An employee makes $37,440 per year at a business with 52 pay periods.
Annual salary/number of pay periods = gross pay per pay period
$37,440 / 52 = $720 gross pay per pay period
Add any additional reimbursements the employee earned to that amount for their full gross pay, including overtime. Although rare, lower-paid employees are eligible for overtime. If employees make an annual salary less than the Department of Labor's designated amount, it's required that employers pay them overtime, if their work exceeds regular hours.
While the above examples give sufficient insight into how gross pay calculations work, they don't account for the average situation. The following examples show more complex situations that employers encounter on a regular basis:
Example 1: A part-time bartender with overtime hours
Victor works hourly as a bartender making $15 per hour. He's paid on a weekly basis and works 16 hours per week. This week, he worked two 10-hour days and in his state, any time worked past eight hours per day is paid at overtime or time and a half.
To find his gross pay, Victor multiplies his regular hours worked (16 hours) by his hourly salary ($15) to find his regular pay.
16 regular hours x $15 hourly pay rate = $300 regular pay
He then calculates his four overtime hours (two hours per day).
4 overtime hours x $22.50 (regular pay x 1.5) = $90 overtime pay
Then, he combines his regular pay and overtime pay.
$300 + $90 = $390 gross pay for this pay period
Example 2: An executive who is retiring
After nearly 45 years of service, Ananya announces her retirement from the firm. In her final year, she earned a salary of $250,000 paid bi-weekly or 26 times per year. To repay her for her many years of contributions, the company offers an additional bonus of $45,000.
Using the formula, Ananya inputs her salary and pay period structure.
$250,000 per year / 26 pay periods = $9,615 per pay period
To find her full gross pay for her last pay period, she adds her regular gross pay per period and her bonus.
$9,615 gross per pay period + $45,000 bonus = $54,615 gross pay for final pay period
Example 3: A web designer
Eloise is a web designer who works for a large company. Eloise is paid a salary of $40,000 and she is paid twice a month or 24 times per year. She also earns a yearly bonus of $5,000.
Eloise’s annual gross pay is $45,000, which is a combination of her salary and bonus.
If Eloise is paid her bonus at the end of the year, in her last paycheck of the year, then her gross pay would be calculated as follows:
$40,000 annual salary / 24 pay periods = $ 1,667 regular pay per pay period
$5,000 bonus / 1 pay period = $5,000 bonus in the one last pay period
$1,667 regular pay + $5,000 bonus = $6,667 gross pay for the one last pay period
Frequently asked questions
How does gross pay differ from net pay?
Gross pay is the income that an employee earns before their employer deducts taxes and other expenses from their wages. Net pay is the resulting amount after all deductions and taxes. You can calculate net pay by subtracting taxes after deductions from your gross pay. Since it doesn't account for taxes, gross pay is higher than net pay.
How do I use gross pay to determine how much tax I pay?
If you want to calculate the percentage of taxes that your employer removes from your paycheck, assess the federal and state withholding information on your W-2 tax form. After adding all the taxes you've paid, divide the resulting figure by your gross pay to determine your tax rate. Understanding this rate can help you reduce your tax liability for the next year.
What's the 30% rule for gross pay?
The 30% rule for gross pay is a budgeting technique that involves spending no more than 30% of your monthly income before taxes on expenses such as rent and car payments. Understanding and following the 30% rule can make it easier to plan your budget for each month. You can use spreadsheet software to track your monthly expenses and gross pay.
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