Gross Amounts | Meaning and Definition

What is the gross amount?

Gross amount is an amount of money an employee earns from an organization before any deductions are made. It includes the standard pay rate of an employee, including the overtime amount during the pay period.

Let us explore with an example. If your employer agreed to pay you a yearly annual compensation of $120,000, then you have agreed to $10,000 as your monthly gross pay. An employee should have to understand the term gross pay because it is necessary to know the gross pay amount for negotiating the salary.

Gross Pay Calculation

For salaried employees:

The Gross pay can be calculated as

Gross Pay = The Annual salary amount of an employer, divided by the number of pay periods.

If an employer has agreed to a monthly payment of $10,000, the employer has agreed to pay $120,000 annually. The employee will receive a total of twelve paychecks, and with the additional pay periods, the paycheck gets decreased.

For Hourly Pay employees:

Gross Pay = the total number of hours worked in a pay period * Hourly Rate with the inclusion of overtime hours and hourly overtime rate.

If an employee needs a gross pay of $5,000, he/she should work nearly 80 hours and an hourly rate of $62.50 per hour.

How do gross pay and net pay differ?

Gross pay is an amount paid to the employee before deductions. On the other hand, net pay is otherwise called the “take-home” amount. The net pay is the amount of money an employee obtains after making all the deductions.