Gross Pay

What gross pay is

Gross pay is what your employee earned before deductions: the starting number in the payroll calculation. It is the figure that appears on the employee's paystub as total earnings and feeds directly into their Form W-2 at year end.

What you calculate first is gross pay. Tax withholding, benefit deductions, and net pay all flow from that number. Get gross pay right and the rest of the calculation works. If gross pay is off, every downstream figure is off with it.

Gross pay is not the same as net pay, which is what the employee takes home after deductions. For a breakdown of the difference between the two, see gross pay vs. net pay comparison article.

What gross pay includes

Gross pay typically includes all wages and compensation earned during the pay period:

• Regular wages (hourly or salary)
• Overtime pay, as required by applicable federal and state law
• Bonuses
• Commissions
• Tips, where applicable
• Paid time off used during the period

Gross pay does not include costs the employer pays on top of wages. These are expenses you carry as the business owner, but they are not part of the employee's earnings:

• Your share of payroll taxes (the employer portion of Federal Insurance Contributions Act (FICA))
• Federal unemployment tax (FUTA)
• State unemployment insurance (SUI/SUTA)
• Workers' compensation premiums
• Your contributions to the employee's health insurance or retirement plan
• Expense reimbursements

This distinction matters when you are reconciling payroll records or preparing W-2s. The W-2 reports the employee's gross wages, not your total labor spend.

How to calculate gross pay

Gross pay is calculated differently depending on how the employee is compensated.

Hourly employees

Multiply regular hours worked by the hourly rate, then add any overtime pay for the period. Overtime applies to hours worked beyond the threshold set by applicable federal and state law. Check your state's requirements: some states set lower thresholds or higher rates than the federal standard.

If the pay period spans more than one workweek, track each week's hours separately for overtime purposes.

Salaried employees

Divide the employee's annual salary by the number of pay periods in the year. On a biweekly schedule (26 periods), a $52,000 annual salary produces $2,000 in gross pay each period, the same amount every pay cycle regardless of hours worked.

The exception: partial periods for new hires starting mid-cycle, or unpaid leave in states that permit salary deductions for it.

Commission-based employees

Add the employee's base wages for the period to any commissions earned and paid during that pay period. Commissions are included in gross pay in the period they are paid, not the period the sale was made. If the employee receives an hourly base plus commissions, overtime still applies to the hourly component.

Gross pay and net pay

Net pay is what the employee takes home after taxes, benefits, and garnishments come out of gross pay. For an overview of which deductions apply and how to walk an employee through their paystub, see gross pay vs. net pay comparison article.

Why getting gross pay right matters for your payroll

Gross pay is the first number in a chain. A wrong compensation type, missed overtime hours, or a commission left out each compounds through the rest of the calculation. Incorrect gross pay leads to incorrect tax withholding and can create errors in year-end W-2 reporting that take time to correct.

SurePayroll® By Paychex calculates gross pay from the compensation type, hours, and pay details you enter. Put in your employee's rate, log hours worked, and add any variable pay for the period; SurePayroll produces the gross pay figure, applies overtime rates for hourly employees, and carries the number through to withholding and net pay.