How to Calculate Salary Minus Expenses

An employee's salary has various expenses deducted from it.

For a business, salary is a payroll expense for employees who earn an annual salary, unlike employees who earn wages that are payable per hour. Gross salary per pay period is an amount prorated and based on the employee’s stipulated annual salary. An employee’s net salary is gross salary with a variety of expenses deducted from it. Some of these expenses include payroll taxes, employee’s share of medical premium and paycheck deductions for charity.

Instructions

1. Determine the employee’s gross salary. For example, Lucy has an annual salary of $90,000. If she receives a paycheck every two weeks, her bi-weekly gross salary is $3,462, or $90,000 divided by 26 (52 weeks in a year divided by two).

2. Identify the period’s payroll expenses that are deducted from the employee’s salary. Examples of payroll deductions include payroll taxes such as federal tax withholding and FICA tax, medical premium deductions, life insurance premium deductions, payroll deductions for charity and deductions for a health savings account. Amounts put into a health savings account consist of pre-tax dollars; the deductions reduce the total salary amount used to calculate payroll taxes.

3. Calculate the employee’s net salary amount. Take the employee gross salary and deduct all related employee payroll expenses for the period identified in Step 2. The result is the net salary amount.

4. Deduct from net salary any expenses incurred while the employee performs his job. These expenses can include public transportation to and from work, child care, gas expenses, car maintenance, meal preparation services and wardrobe expenses. The salary amount left over is the actual take-home pay or salary for the employee.

References

• The Pi Kappa Alpha Fraternity: Sample Payroll Expenses Worksheet
• Salary Calculator: Homepage

Resources

• cb salary: Five Ways to Successfully Negotiate a Salary