Gross-Up | Meaning and Definition

What is Gross Up?

Gross-Up meaning is simple as it stands for the additional sum of money given to an employee by his/her employer to offset any income tax, which is likely additional Medicare, social security, etc.

Gross-Up is basically a one-time payment and is, however, optional. 

Examples of Gross-Up

For a better understanding of gross-up, the following examples are presented:

Suppose an employee is relocated by a certain company to a different place altogether, and he is paid an amount of Rs. 4,000 for his moving expenses. This reflected on his paycheck as well, but as he looks at the relocation reimbursement at his paystub, he sees that it equals Rs. 5,000. Here, the total amount that is 5,000 includes both the moving expenses as well as the withholding tax owned by the man on the 4,000 he received.

Situations to offer a Gross-Up

Good Up payment is often offered by the employer to employees in certain cases:

  • When a bonus check is granted.
  • When paying for relocation expenses.
  • During the compensation plan.
  • Contract made which specifies a definite net salary.
  • To ease an employee’s tax burden.

Advantages and disadvantages of GU payroll

Pros:

  • It eases the tax burden of an employee, which motivates and satisfies the employee.
  • It helps the employees to afford personal health insurance if the employer can’t afford to implement group health insurance.

Cons:

  • The process of calculating the correct gross pay involves many steps.
  • On offering the gross pay to an employee, the expectation rises to receive it again and again. Hence it becomes difficult when the company recruits more employees and grows.
  • It might end up being more expensive for the company as compared to the group health insurance.
  • Individuals prefer to choose companies that offer health benefits that are formal.