What is Gross Pay? (Definition, Formula & More)

June 16, 2022

What is Gross Pay? (Definition, Formula & More)

When you start a new job – especially if it’s your first one – you might be told many different things about your earnings. One of those things is likely to be what your Gross Pay is. 

If you don’t already know the Gross Pay definition or how to calculate Gross Pay, you might wonder how this will affect you and your bank account. Here’s what you need to know. 

Gross Pay vs Net Pay

The first thing you need to know about Gross Pay is how it differs from Net Pay. 

Gross Pay is the total amount of money your employer pays you before any deductions are made. Net Pay is the amount of money you go home with at the end of any pay period after those deductions are made. So the Gross Pay formula would be:

Net Pay + Deductions = Gross Pay

Or, as you are more likely to calculate it to get your Net Pay: 

Gross Pay – Deductions = Net Pay

What Is An Example of Gross Pay?

Let’s imagine you get a job where you earn $20 an hour, and you work a 40-hour week. Your Gross Pay for the week would be $800. However, you are taxed at a rate of 10%, and you have to pay a flat rate of $50 per week for your health insurance copay. 

This means that the difference between your Gross Pay and your take-home or Net Pay will be:

Gross Pay – Deductions = Net Pay

$800 – ($80 + $50) = Net Pay

$800 - $130 = Net Pay

Therefore your Net Pay would be $670 after your deductions have been taken off your Gross Pay. 

What Is the Difference Between Wages and Gross Pay?

If you are talking about gross wages, then there is no difference between gross wages and Gross Pay. It’s the total amount of money you are owed in a particular pay period before any deductions for taxes and other obligations are deducted from that amount. 

Gross Pay could also be your gross salary, however, which is also money that you earn during a particular pay period, but which usually doesn’t fluctuate based on the number of hours worked. 

When Does Gross Pay Increase?

We all want to take home more money at the end of the week or month, and one way to do that is to increase your Gross Pay. 

If you earn an hourly wage, you could do this by working overtime and having those hours added to your wages. If you earn a salary, you would probably have to get a raise or a promotion to increase your Gross Pay. 

It’s also worth noting that sometimes, even if your Gross Pay doesn’t change, your Net Pay might. That usually happens when the tax rate for your tax bracket or the exempt amounts change or if you have contributed the maximum to a particular fund or deduction. For instance, sometimes, your pension contributions would only be on any earnings up to a maximum amount for the year. Once you have reached that threshold, you will stop paying that for the year, which will increase your take-home pay. 

Easy to Calculate

The good news is that the answer to the question of how to calculate Gross Pay is that it’s very easy, and it’s simply the amount of money you are paid per month, week or hour, according to your employment contract. However, figuring out how much of that money you take home might not be as simple! 

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