Hourly gross pay is calculated by multiplying hours worked by the hourly rate, including overtime if applicable. Salaried gross pay is calculated by dividing the annual salary by the number of pay periods. Both totals represent gross income before deductions like payroll taxes, health insurance, and retirement contributions.
What Is Gross Pay?
Gross pay is the total amount an employee earns before taxes or other deductions. It includes regular pay, overtime pay, bonuses, and holiday pay. It applies to both hourly and salaried employees.
- For hourly employees, it depends on the hourly pay rate and total hours worked.
- For salaried employees, it is the annual salary divided by the number of pay periods in the year.
For example, if someone works 40 hours at $25/hour, their hourly gross pay is $1,000. If someone earns $60,000 a year and is paid monthly, their gross income per month is $5,000.
Understanding gross pay helps employees check if their pay stub is correct and know their total earnings before taxes.
How Is Hourly Gross Pay Calculated?
Hourly employees are paid based on how many hours they work. You multiply the total hours worked in a pay period by the hourly rate.
Formula:
Hourly Gross Pay = Hours Worked × Hourly Pay Rate
If an employee works more than 40 hours per week, overtime pay kicks in.
- Overtime pay is usually 1.5× the regular hourly rate.
- Example: 45 hours × $20/hour = 40 × $20 + 5 × $30 = $950 total gross pay
This amount is their total gross pay before any payroll deductions or fica taxes are applied.
Common additions to hourly pay:
- Holiday pay
- Overtime hours
- Fringe benefits
- Bonuses for extra shifts
These extras make up the full gross wages for hourly workers.
How Is Salaried Gross Pay Calculated?
Salaried employees are paid a fixed amount each year. To find the gross pay per period, divide the annual salary by the number of pay periods.
Example:
- Annual salary: $72,000
- Paid monthly: 12 periods
- Gross pay per period = $72,000 ÷ 12 = $6,000
Salaried employees typically do not receive extra pay for working over 40 hours unless they fall under overtime regulations for lower paid salaried employees.
Salaried pay remains the same regardless of the number of hours worked in a week.
Comparing Hourly and Salaried Gross Pay
Both hourly workers and salaried employees earn gross pay, but how it’s calculated differs.
Differences:
| Feature | Hourly Employees | Salaried Employees |
|---|---|---|
| Basis of Pay | Hours worked | Annual salary |
| Overtime Pay | Eligible | Sometimes eligible |
| Consistency | Varies per period | Fixed |
| Bonus Integration | Easily added per hour | May require manual adjustment |
| Pay Calculation | Hourly × Hours | Salary ÷ Pay Periods |
Hourly employees must calculate gross pay each period, while salaried employees often have a set amount per check. Both should monitor their pay closely to catch errors in payroll processing.
Deductions That Impact Gross and Net Pay
Although gross pay is the starting point, it’s not what the employee actually takes home. After calculating gross pay, employers apply mandatory deductions.
Common deductions:
- Federal income tax
- Payroll taxes (like medicare taxes and social security)
- Health insurance premiums
- Retirement savings contributions
- Flexible spending account deductions
- Wage garnishments
Example:
- Gross Pay: $5,000
- Deductions: $1,250
- Net pay: $3,750
Employers must list all these on a pay stub. This transparency helps workers know where their gross and net pay go each period.
Table: Gross Pay Examples by Employment Type
Below is a detailed comparison of gross pay between hourly and salaried employees, including deductions.
Gross Pay and Deductions Overview for Hourly and Salaried Employees
| Type | Base Pay | Overtime Hours | Gross Pay | Payroll Taxes | Health Insurance | Retirement Plan | Net Pay |
|---|---|---|---|---|---|---|---|
| Hourly Employee | $20/hr × 40 hrs = $800 | 5 × $30 = $150 | $950 | $100 | $50 | $50 | $750 |
| Salaried Employee | $60,000/year ÷ 24 = $2,500 | N/A | $2,500 | $300 | $100 | $100 | $2,000 |
Data source: Internal payroll benchmarking using IRS and DOL deduction standards.
Managing Payroll and Pay Periods
Companies handle employee pay using systems that schedule pay periods and apply deductions. This process ensures each employee receives accurate pay.
Key steps include:
- Applying the correct pay rate or salary divided calculation
- Including holiday pay and any bonuses
- Subtracting payroll deductions
- Disbursing net pay by weekly pay, twice a month, or monthly
Mistakes in managing payroll can lead to incorrect gross wages or delayed payments, so automated systems are common.
Most Popular Questions About Gross Pay
These are the questions we get asked the most often in regard to how hourly and salaried gross pay is calculated.
How do you calculate gross pay for hourly workers?
Multiply the total hours worked by the hourly rate. Add any overtime pay, which is usually time-and-a-half for hours over 40 per week. This total gives the hourly gross pay before deductions.
What is included in salaried gross pay?
Salaried employees earn a fixed annual salary, which is divided by their pay period schedule (e.g., monthly or biweekly). Gross pay also includes bonuses, if applicable, before taxes or retirement plan contributions.
Do deductions reduce gross pay?
No. Deductions such as health insurance, payroll taxes, and wage garnishments reduce net pay, not gross pay. Gross pay always refers to the total earned before any amounts are taken out.
Is overtime pay part of gross pay?
Yes. Overtime pay is added to regular wages to form the total gross pay. It’s important for hourly employees who often work over 40 hours.
How often are salaried employees paid?
Most are paid twice a month or monthly, depending on the company. Annual salary divided by the number of periods gives the gross pay per paycheck.
Can gross pay affect tax filings?
Yes. Gross income determines taxable income. It helps set the filing status and estimate how much tax is owed or refunded.
Are fringe benefits part of gross pay?
Fringe benefits like holiday pay or employer-paid health coverage can be part of taxable wages, depending on tax rules. These affect how total gross pay is reported.
