Gross pay
Gross pay is the total amount an employee earns in a pay period before taxes, benefits, and other deductions are subtracted. It includes base wages or salary plus overtime, bonuses, commissions, and any other taxable compensation. What lands in the employee’s bank account, net pay, is always gross pay minus every withholding.
How gross pay differs from net pay
Net pay is what actually reaches an employee’s bank account: gross pay minus federal income tax, state and local income tax where it applies, FICA (Social Security and Medicare), and any voluntary deductions such as health insurance premiums or 401(k) contributions. Employers calculate gross pay first, since it’s the base every other payroll number derives from: overtime under the Fair Labor Standards Act is calculated on the regular rate derived from gross pay, and Form W-2 reports taxable wages, which differ from gross pay by any pre-tax deductions, plus the taxes withheld from them. A salaried employee’s gross pay for a pay period is typically their annual salary divided by the number of pay periods; an hourly employee’s gross pay is hours worked times their pay rate, plus any overtime premium.
What counts toward gross pay
Gross pay covers every form of taxable compensation earned in the period, not just base wages: regular hours, overtime premiums, shift differentials, bonuses, commissions, and paid time off that’s paid out in the same check. Reimbursements for actual business expenses are typically excluded, since they aren’t compensation for work. Employers processing payroll for hourly staff who work multiple pay rates or job classifications in one week must compute overtime on a weighted-average regular rate across those rates, a common source of gross-pay errors when done by hand.
When someone works two or more pay rates in the same week, calculating the correct weighted-average overtime by hand is exactly the kind of gross-pay math that trips up manual payroll. WageTime computes weighted-average overtime automatically whenever a person works multiple rates or classifications in one week.
See how WageTime handles multi-rate overtimeFrequently asked
Is gross pay the same as taxable income?
Not exactly. Gross pay is total earnings before any deductions; taxable income is gross pay minus pre-tax deductions like traditional 401(k) contributions or pre-tax health premiums, which lower the wages actually subject to income tax withholding.
Does gross pay include overtime?
Yes. Any overtime premium an employee earns in a pay period is part of their gross pay for that period, and it flows into the same weighted-average overtime rules that apply to regular wages.