What are gross wages?
Gross wages refer to the amount of money earned before taxes are withheld from a paycheck and are the monthly salary people agree to when accepting a job. On a pay stub, gross wages are at the bottom of the page—usually in a larger font.
What is included in gross wages?
Gross wages comprise everything an employee earns, including:
- Salary or hourly wages
- Commission or bonuses
- Vacation or sick pay
- Piece rate pay (per project or per unit)
Let’s say, for example, an employer pays $60,000 + two annual bonuses of $3,000. Annual gross wages will be $66,000.
How do you calculate gross wages?
For hourly workers:
hourly rate x the hours worked during the pay period = gross wages per pay period
If someone works overtime, include that as well:
Overtime hours worked during a pay period x the overtime hourly rate = overtime wages
To determine the gross wages for salaried employees:
Annual salary/number of pay periods per year = gross wages per pay period
What’s the difference between gross and net wages?
Gross wages are always higher than net wages.
In other words, the amount of money a person accepts as the job salary is more than the amount they take home. While gross wages comprise compensation before taxes, net wages are the amount remaining after taxes are withheld from the paycheck for
- Federal, state, or local income tax
- Social Security and Medicare
- Wage garnishments
- Health insurance plans
- Retirement funds
Why should HR leaders care about gross wages?
As an HR professional, your primary objective is to manage people and address their needs. But, because compensation is fundamentally tied to work, it needs considerable attention.
Understanding gross wages and how they work enables you to practice better compensation management for attracting new people and engaging your current workforce.
What can HR leaders do to administer gross wages successfully?
- Understand the company wage system. Even if you’re working with a legal team, you still need to know people’s salaries. This enables you to advocate for your company and your people.
- Handle the human side of compensation. Gross wages often reflect —whether accurately or not—how much the employer values its people and how valued they feel. Consider the budget and employee engagement strategies when deciding on competitive gross wages for each position.
- Encourage people to discuss their salaries. A learning culture can promote engagement, productivity, and retention. When professionals upskill and increase their value, they will naturally want higher wages. To encourage your people to feel comfortable discussing higher salary options, practice active listening, and nurture psychological safety.
Why should proper administration of gross wages be a part of modern HR strategy?
Paying people competitive gross salaries while complying with the law is a prerequisite for attracting quality, skilled professionals. Not only do attractive salaries build your reputation, but they also build a productive and engaged workforce.