Numbers aren’t everyone’s strength. But to decrease payroll errors, you must get comfortable with them. This post will give you a crash course in gross pay versus net pay. We’ll help you uncover what impacts these two calculations. Plus, you’ll see a breakdown of what your employees should expect from their paychecks.
Calculating Gross Pay Versus Net Pay
Gross pay is an employee’s total income before adjustments, withholdings, deductions, and other contributions get taken out. Net pay is the amount of income that remains. The net pay amount, also known as “take-home-pay” that employers deposit into employees’ accounts.
To calculate gross pay for salaried employees, divide their annual salary by the number of pay periods in a year. For hourly employees, multiply their rate by the hours they work during a pay period.
From here, you can move on to figure out net pay. These numbers can look different for every company and employee. It all depends on where you do business. Specific deductions and withholdings will also influence net pay calculations.
What Deductions and Withholdings Impact Net Pay
Employees at every level may have questions about common deductions and withholdings from their paychecks. As the employer, it’s critical to educate yourself on what they are and how they change the total amount of money that lands in employees' pockets.
Here’s a closer look at what deductions and withholdings you should be familiar with.
Deductions may be voluntary and can include the following:
- Benefits and health insurance
- Retirement plan contributions
- Tuition and certification deductions
- Life insurance / short-term disability
- Uniform and tools
Withholdings are mandatory taxes taken from employees’ paychecks. These may include:
How Gross Pay and Net Pay Show on a Weekly Pay Stub
Every paycheck will look different based on hours worked, as well as specific deductions and withholdings. Take a look at how a pay stub might look for an employee making $75,000 a year in Ohio.
Calculated via ADP
In this case, the employee would have a weekly gross pay of $1,442.31 and net pay of $1,112.81 per week.
This is only a basic example, other deductions may include retirement contributions, insurance, and additional taxes or garnishments.
Bottom Line: Gross Pay and Net Pay
Gross pay and net pay may seem like complex concepts. But once you know the basics, you can streamline payroll and reduce stress. If you don’t want to go it alone, leverage software to help you work it out.
Need to improve your processes and calculate pay faster? OnTheClock’s employee time tracking software helps you keep track of employees’ hours during every pay period. It works across devices, making it simple for anyone in any location to use. Try it out now with a 30-day trial, or use it for free with up to two employees.