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What is gross pay?

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Last editedMay 20222 min read

Whether you’ve just received your first pay slip, or you’ve been working for years, it can be difficult to work out all the details of your income. There’s a lot of important information you should know, however, including your gross pay, your payroll number, tax code and your net pay. Understanding what’s on your payslip is essential in order to be sure you’re getting paid the right amount.

What is gross pay?

Gross pay, or gross payment, is the starting point for understanding your finances. It’s the total an employee earns before taxes and any other deductions are taken away. For example, if an employee earns an annual salary of $40,000, this equates to $40,000 in gross pay.

In this post we’ll ask “what is gross pay?” and explore how it differs from net pay, as well as how to calculate it.

What is final gross pay?

Gross payment is all the money you earn at a particular job. If you have two jobs, then you’ll have a gross salary for each one. Gross payment appears on a pay slip as “gross pay”. Gross pay is an important number to know, because it’s often used by landlords or lenders to determine an individual’s ability to pay. Gross income is also used by the state to estimate individual income taxes.

Gross income may include not just wages, but other types of income, including tips, dividends, capital gains, pensions, and interest.

When all deductions, both “above the line” and “below the line” have been made, the taxable income left over can end up far lower than the gross income. Deductions can be mandatory or voluntary, depending on your circumstances, and will probably include income tax. Furthermore, these deductions may include charges for health insurance, or superannuation.

Gross pay vs net pay

Gross pay will usually appear as the highest value number on the pay slip. It refers to how much an employer pays you based on your agreed rate or wage.

Net pay is your take home pay. Your net pay is the amount that’s deposited in your bank account after taxes and other deductions have been made. In general, your net pay will be displayed in a larger font on your pay slip, and it’s sometimes bolded, so it can be clearly distinguished from your gross payment.

Factors that affect net pay:

  • Federal taxes

  • Social security

  • Withheld wages, including court-ordered payments like debts or alimony and child support, can be withheld by an employer

  • Health insurance premiums

  • Retirement plan

Calculating gross pay

The way gross pay is calculated depends on how an employee is paid. For employees that receive a salary, gross pay equates to their annual salary divided by the number of times they are paid each year. For example, if someone earns $50,000 a year and gets paid monthly, their gross pay will be $4166.66.

To calculate gross pay for workers who are paid at an hourly rate, simply multiply the hourly rate by hours worked during a payment period. For example, someone who works 40 hours per week at $15 an hour will end up with a gross pay of $600. Any overtime hours will be added onto the gross pay amount.

Once you understand gross term meaning, you’ll be in a better position to ensure you’re getting paid the proper amount. It’s important to understand your gross annual income because it’s crucial to your financial success. If you’re looking for a mortgage or rental property, lenders and landlords will use your gross pay to determine whether you’re a reliable prospect to lend money to, or collect rent from. 

From an employer’s point of view, it’s important to understand what gross payment is so that you have visibility into the true costs of employing staff.

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