Gross Wages | Meaning and Definition

What are Gross Wages?

It stands for the amount received by an employee before any sort of deductions of taxes and withholdings. Hence they are often significantly more than an employee’s actual take-home/net wage.

Importance of Gross Wages

Its understanding is important since it determines the deductions and taxes percentage. Therefore, employees should also know how to correctly calculate the state income and federal taxes, Medicare, and social security important to the employees.

If an individual is looking for his/her gross pay, they can find it on their pay stubs. It is the largest number recorded, almost at the top of the pay stub.

Difference between Gross and Net Salary

Gross Salary is the amount before deduction and taxes paid to an employee, whereas net salary is the amount received by an employee after deductions in the paycheck. It is the take-home salary. Net salary is equal to gross salary minus taxes and deductions.

Components of Gross Wages

The gross wage of an employee typically includes:

  • Hourly wages
  • Overtime
  • Tips and bonuses
  • Salary
  • Sick Pay
  • Commissions
  • Holiday pay
  • Price rate pay
  • Vacation pay

Calculation of Gross Wages

It depends on whether the employee is a part-timer or a full-timer, salaried or paid hourly. However, gross pay is calculated on the basis of monthly, weekly, quarterly, or daily.

For an hourly worker, multiplying the hourly wage with working hours gives the final result. If a worker receives a wage of 1,000 per hour and works for 2 hours for 5 days in a week, the weekly wage will be 1000 * 5 * 2, which is 10000.

For a salaried employee, dividing the annual salary by 12 gives the gross wage for a month. If the employee receives 1.2 lakh per year, the monthly gross wage will be 1.2 lakh/12, which is 10000.

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