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Definition of Gross wages:

Gross wages are the employee’s earnings before taxes and deductions withholdings. It depends on the employment type and wages set by the employer. For salaried employees, it is the annual salary. For hourly employees, it is their hourly wages multiplied by the number of hours worked.

Why should you know your Gross Wages?

It is important to know about the gross wages since the income tax and deduction percentages are based on the employee’s gross wages. Also, the employee is aware if the withholdings are over-withheld or under-withheld and take action accordingly.  

Calculating Gross wages:

Gross wages for salaried employees

Gross wages for salaried employees are their annual pay. To know their monthly gross wages, simply divide the gross wages by 12, since there are 12 months. 

For example, if an employee earns $120,000 a year, on dividing it by 12, their monthly gross wages become $10,000. 

Gross wages for hourly employees

Gross wages for hourly employees are the hourly wage multiplied by the number of hours worked by the employee. 

For instance, if an employee earns $20 per hour, and works 40 hours per week. Their gross wages for one workweek would be ($20 X 40) $800. 

The overtime worked by the employee will also be included in the gross pay. So, if the employee works for 6 hours overtime, it would include (6 X ($20 X 1.5)) $180 extra, making a total of $980.

Difference between Gross wages and Net wages

Gross wages:

  • Gross wages are the salary that contains all the benefits and allowances. It is the amount before tax deduction. This includes HRA, conveyance, medical allowance. 

Net wages: 

  • It is the amount that an employee takes home after all the deductions like Income tax, pension, professional Tax and so on. 

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