Gross Salary: what is it and how is it calculated?

  • Jul 26, 2021
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The gross salary is written in the employment contract, it never varies between months and cannot be changed without signing an agreement between the two parties. Does not include severance payments, 13th month, social benefits, benefits in kind and other bonuses. Gross salary corresponds to the total compensation of the employee before taxes or social deductions, which explains the great difference that exists between the net salary and the gross salary.

You have just been interviewed, you have been offered a certain salary and you have accepted it. This is your gross salary. However, the amount you will receive each pay period will be less.

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In fact, your employer makes a series of deductions or deductions from his salary. This explains the difference between gross salary and net salary. In this comprehensive guide to gross pay, we'll explain how these deductions from gross pay work. We will show you how to calculate a net salary from the gross. It is a fairly complex calculation, but it can be done at least roughly.

Net salary

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In this article you will find:

What is gross salary?

The gross salary is the amount an employee earns before source deductions and other deductions are made. In particular, gross wages are used to describe the amounts earned by hourly paid employees.

When an employee accepts a new job offer, the negotiated salary represents income before taxes and deductions. It is roughly the gross salary. The first paycheck received includes the net amount of salary after taxes and deductions.

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Gross salary is, therefore, equal to the income before taxes and deductions, while the net salary corresponds to the amount that remains after having calculated the amounts to be subtracted. Generally, job postings are based on gross pay. It is difficult for an employer to make an offer based on take-home pay, as each employee's withholding tax can vary in different situations.

Items to calculate gross salary

An employee's gross salary can be higher than the negotiated salary. The calculation of the annual gross salary includes:

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Base salary

It is the minimum amount of compensation that an employer must pay its employees for the work performed by them during a specified period or number of hours.

This salary results from the agreement between an employer and an employee. However, there is a minimum wage that cannot be reduced either by collective agreement or by individual agreement. The amount of the minimum wage varies from country to country.

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Accessories

These are the additions made to the base salary. Among these additions, we find:

  • Bonuses: It is an amount that is added to the gross earnings awarded by the employer. Most of the time, they are based on the productivity and performance of a worker or a company.
  • Extraordinary hours: For example, in a company the working week can be set to 40 hours. The hours worked as supplements are paid at least X times the normal amount per hour.
  • commissionsIn addition to the base salary, some employers pay their employees in the form of commissions. In sales, these usually represent a certain percentage of the sales made by an employee. Commissions are part of the gross payroll calculation.

Convert gross salary to net

The law requires the employer to collect an amount for taxes and income contributions paid to the worker. These deductions are called tax withholdings.

In addition to income tax, the employer also deducts social security contributions from the employee's gross salary (depending on the country). These contributions contribute to various government plans such as employment insurance, parental insurance, and the pension plan.

In addition to taxes and contributions, the employer can also withhold other amounts from the employee's gross salary:

  • The contributions that the worker must pay to the supplementary pension or health care funds provided for by the applied collective bargaining agreement. Each fund has its own rules.
  • Union dues. In this case, the employer withholds a certain sum and gives it to the union representing the worker.

After all of these sums are deducted from gross pay, an estimate of net pay can be calculated by subtracting all of these deductions from gross pay.

Therefore, net income is what is left in his pocket after all deductions during a given period.

How to calculate the gross salary?

The gross salary of an employee is generally expressed in terms of one year. If you are looking for an answer to the question: "How do I calculate my gross salary?"Keep in mind that this is an operation that takes into account several factors. Here is an example of calculating the gross salary of an employee who is paid by the hour:

  1. Establish a normal work week or average the hours worked each week over a few weeks.
  2. Multiply the average wage for that week by the hourly wage.
  3. Multiply the number obtained by the number of weeks worked in the year.
  4. Add bonuses, commissions, and overtime income to this amount.

If your gross annual salary is defined in your employment contract, the calculation is a bit simpler. You already know your basic salary "gross". All you have to do is add bonuses, commissions, and overtime to find out your gross pay.

Here is an example of overtime calculation:

Suppose an employee is paid $ 10 per hour, works 40 hours in a workweek, and the hours Overtime payments are paid at one and a half times the regular rate for all hours worked during the fortieth hour.

  1. First, calculate the compensation for the normal workweek: $ 10 x 40 hrs = 400
  2. Then calculate the compensation associated with overtime: $ 12 x 1.5 (example cost of overtime) x 3 h = $ 45
  3. Total gross compensation for the weekly pay period is $ 445

In this example, if the employee works 52 weeks per year, then his annual gross base salary is $ 23,140. To this is added the income for overtime. If, for example, this employee worked 100 overtime hours during the same year (100 hours x $ 10 x 1.5 = $ 1,500), we must add $ 1,500 to this amount, for a gross income of $ 24,640.

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