Very often, there are lots of misunderstandings about gross pay as well as tax responsibilities of an employee, this article sort to explain what is gross pay and how it is calculated.

What is Gross Pay

Gross pay is the amount of wages an employee earns before any taxes deductions or other amounts have been taken out of it. So gross means you don’t pay any tax on it, it means simply how much you make an hour times the amount of hours that you work in.

How to Calculate Gross Pay

Today we are going to learn how to calculate gross pay. Gross pay equals the number of hours worked multiplied by the pay rate. So if you worked 15 hours during the week and you are paid $8 an hour you would receive a hundred and twenty dollars before taxes. So let’s look at an example: one marine worked 48 hours last week at $8 an hour so we would first calculate the 40 hours so that is 40 times eight dollars an hour which would give us three hundred and twenty dollars. The Fair Labor Standards Act requires employers to pay their employees one and a half times the regular rate for any hours worked over 40 so the overtime rate would be the regular rate of $8 multiplied by 1.5 and that person had received twelve dollars an hour for any time any hours over 40. In this case the marine worked eight hours over time so we would multiply that by the overtime rate of $12 an hour and he made 96 dollars in overtime pay so add the $96 overtime pay to the three hundred and twenty dollar regular pay and your gross pay will be four hundred and sixteen dollars.

How Gross Pay is Used to Calculate Payroll and Income Taxes

Let’s say a worker Sarah works 40 hours a week as a nanny for Mrs. Miller, Sarah is paid $15 per hour every week. To calculate how much to pay her she multiplies 40 hours by 15 dollars to get $600 this is Sarah’s gross pay. Next Mrs. Miller calculates the payroll and income taxes, she will deduct from Sarah’s gross pay for Social Security and Medicare tax Mrs. Miller multiplies 600 dollars by 7.65 % and gets $45.90. Next she checks IRS and state tax tables to find out how much federal income tax is let’s say $60 and state income tax let’s assume $25. To deduct from Sarah’s gross pay Mrs. Miller subtracts these amounts and writes Sarah’s paycheck for $469.10, this is Sarah’s take-home pay. Mrs. Miller has to set aside the tax fund she deduct from Sarah’s paycheck and send them to the state and federal tax authorities when they are due. Mrs. Miller also calculates her employer taxes, the taxes she pays from her own funds these total approximately 10% of Sarah’s gross pay. Mrs. Miller will send these monies to the taxing authorities along with the funds she deducted from Sarah’s pay.

I hope you have found this article helpful and it has explained to you what gross pay is and how it is calculated.