How to Calculate Gross Pay for Salaried and Hourly Work
Learn how to accurately calculate your total gross pay, whether you're paid hourly or on a salary. Understand your full earnings.
Gross pay is the total earnings an individual receives from an employer before any deductions. This amount serves as the foundational figure for all subsequent payroll calculations. Understanding gross pay is fundamental for both employees to comprehend their total compensation and for employers to manage payroll accurately and ensure compliance with labor laws.
What Makes Up Gross Pay
Gross pay is comprised of various forms of compensation. For hourly employees, gross pay includes earnings from their hourly rate multiplied by the hours worked.
Salaried employees receive a fixed amount regularly, typically on a weekly, bi-weekly, or monthly basis, regardless of the exact number of hours worked. Overtime pay also contributes to gross earnings when employees work beyond standard hours, usually calculated at 1.5 times their regular hourly rate for hours exceeding 40 in a workweek.
Commissions, often a percentage of sales, are included in gross pay. Bonuses, paid for performance or as incentives, also add to an employee’s gross income. Tips received by employees are considered part of their gross income.
Step-by-Step Gross Pay Calculation
For hourly employees, determine the regular hours worked within a pay period and multiply them by the hourly rate to find regular pay. If applicable, identify any hours worked beyond the standard 40-hour workweek as overtime hours. These overtime hours are then multiplied by the overtime rate, which is typically one and a half times the regular hourly rate. The total gross pay for an hourly employee is the sum of their regular pay, overtime pay, and any other applicable earnings such as commissions or bonuses earned during that period.
For salaried employees, calculating gross pay is generally straightforward, as they receive a fixed amount for each pay period. Identify the agreed-upon salary amount for the specific pay period. For instance, an annual salary would be divided by the number of pay periods in a year (e.g., by 26 for bi-weekly pay or 12 for monthly pay). Any additional earnings, such as performance bonuses or sales commissions, are then added to this fixed salary amount.
When an employee’s compensation is primarily commission-based, determine the total sales or revenue subject to commission within the pay period. This amount is then multiplied by the employee’s specific commission rate to calculate their commission earnings. If the employee also receives a base salary, that salary is added to the commission earnings.
Additional Gross Pay Elements
Other elements can contribute to an individual’s gross pay. Non-cash compensation, such as the value of certain fringe benefits or the personal use of a company-provided vehicle, can be considered taxable gross income. The fair market value of these benefits is generally included.
Reimbursements for expenses can also impact gross pay. If an employer’s reimbursement plan does not meet specific IRS requirements for an “accountable plan,” the reimbursed amounts may be included in the employee’s gross income and treated as taxable wages. An accountable plan requires business connection, substantiation of expenses within a reasonable time, and the return of excess amounts. Reimbursements that fail to meet these criteria are added to gross wages.
Paid time off, such as sick pay and vacation pay, is typically treated as regular wages when paid out. These payments contribute to an employee’s gross income for the pay period in which they are received. When an employee takes sick leave or vacation, the compensation received for those hours or days is generally included in the gross pay calculation.