What Is Gross Pay?

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It is important for any employee and business owner to understand the term gross pay. How many employees have opened that first paycheck and have been confused that it was lower than they estimated? Having a clear understanding of what the gross pay is will save disappointment in the future.

Types

There are two types of pay, net and gross. Gross pay is the amount that the employer offered as the remuneration for the services an employee performs during a certain period of time. The gross pay also will cover any allowances, commissions and bonuses before any deductions are made on behalf of the employee. Net pay is the amount the employees' check will be made out for after withholding taxes, Social Security, insurances and other deductions are taken out of the paycheck.

Identification

There are two different types of gross pay. Hourly gross pay is determined by the hourly wage multiplied by the numbers of hours worked in a payroll period. For example, if the payroll period is a 40-hour week, the gross pay will be 40 times the hourly wage.

The second type of pay is the salaried gross pay. The annual pay is divided by the number of pay periods in the year and paid to the employee.

Function

A gross pay statement may be reflected on each paycheck stub that is paid out to the employee. This statement will reflect the amount of pay to date the gross amount has added up to from the beginning of the year to date the check is made out. Overtime hours will also come under gross pay calculations. These hours will have a higher hourly wage and must still have payroll deductions.

Effects

A business owner will pay an agreed-upon amount of an employee's insurance costs per week. The employer pays out a fee which reflects a percentage of the employee's wages for FICA, the Federal Insurance Contribution Act tax. It is very important that the employer have accurate records kept for the employee payroll, the gross pay and the deductions made from the gross pay.

Misconceptions

Many first-time employees may not know that they do not receive their full gross pay when they are paid by their employer. They must understand that the employer is not taking anything from them. An employee receives the net pay as the weekly or biweekly take-home pay. This is always the amount that is left over from the gross pay after payroll deductions.

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