Gross Pay
$$\text{Gross Pay} = \text{Hourly Rate} \times \text{Hours Worked}$$
What is Gross Pay?
Gross pay is the total compensation earned during a pay period before any deductions are applied. It includes base salary or hourly wages, overtime, bonuses, commissions, and other taxable compensation. When an employer quotes a salary of $60,000 per year, that is a gross pay figure.
Gross pay is distinct from net pay (take-home pay). Federal income tax, state income tax, Social Security (6.2%), Medicare (1.45%), health insurance premiums, and retirement contributions (e.g. 401k) are all deducted from gross pay to arrive at the amount actually deposited into your account.
When to use Gross Pay
Use gross pay when comparing job offers, calculating your hourly equivalent salary, or filing tax returns. Use net pay when planning your monthly budget or cash flow, since that is the actual amount available to spend.
Worked examples
| Component | Amount |
|---|---|
| Base salary (annual) | $60,000 |
| Gross pay per bi-weekly period | $2,307.69 |
| Federal income tax (est. 22%) | -$507.69 |
| Social Security (6.2%) | -$143.08 |
| Medicare (1.45%) | -$33.46 |
| Health insurance premium | -$150.00 |
| Net pay (take-home) | ~$1,473.46 |
Common pitfalls
Never budget using gross pay figures. A $60,000 salary sounds like $5,000 per month, but after taxes and deductions, most workers in the US take home $3,200-$3,800 per month. Use net pay for all monthly expense planning.
Frequently asked questions
Is gross pay the same as salary?
Gross pay and salary are related but not identical. Salary is the agreed annual or periodic rate. Gross pay is the actual amount earned in a specific pay period, which may differ from base salary if bonuses, overtime, or commissions are included.
What percentage of gross pay do most people take home?
For most US workers earning $40,000-$100,000, net pay is roughly 65-75% of gross pay. The exact figure depends on filing status, state taxes, retirement contributions, and benefit elections. Higher earners in high-tax states may keep as little as 55-60%.