Definition: Gross pay is an employee’s total earnings for a pay period before withholding and deductions, including regular wages or salary, overtime premiums, commissions, nondiscretionary bonuses, shift differentials, and paid time off. Net pay is what remains after deductions.
Gross pay is the starting point for every paycheck. It is the full amount earned before federal and state income tax withholding, Social Security and Medicare taxes, benefit contributions, and other deductions. For hourly employees, gross pay usually combines several components:
The basic formula for a week is: (regular hours × hourly rate) + (overtime hours × overtime rate) + other earnings. Under federal law, overtime is at least 1.5 times the regular rate, which can be higher than the base hourly rate when the employee earns other pay that must be included.
Worked example (hypothetical): A distribution center associate earns $18.00 an hour plus a $1.50 per hour night differential for every hour worked on the overnight shift. In one workweek she works 44 hours, all on nights, and uses no PTO.
| Step | Calculation | Amount |
|---|---|---|
| Straight-time wages | 44 × $18.00 | $792.00 |
| Night differential | 44 × $1.50 | $66.00 |
| Total straight-time earnings | $792.00 + $66.00 | $858.00 |
| Regular rate | $858.00 ÷ 44 | $19.50 |
| Overtime premium (half-time on 4 hours) | 4 × $19.50 × 0.5 | $39.00 |
| Gross pay for the week | $858.00 + $39.00 | $897.00 |
DOL Fact Sheet #23 explains that the regular rate includes all pay for employment except statutory exclusions, which include discretionary bonuses, gifts, and pay for time not worked due to vacation, holidays, or illness. That is why the differential is included in the regular rate above. If payroll had calculated overtime on the $18.00 base rate alone, the premium would have been $36.00 and the employee would have been underpaid $3.00. You can check figures with the overtime calculator or time card calculator.
For salaried employees, gross pay per period is the annual salary divided by the number of pay periods. A $54,600 salary paid biweekly is $54,600 ÷ 26 = $2,100.00 per check. Nonexempt salaried employees are also owed overtime; their regular rate depends on the hours the salary is intended to cover. Exempt employees generally receive the same salary each period regardless of hours, subject to the rules on permitted deductions.
Gross pay must meet minimum wage for all hours worked. The DOL’s minimum wage page states that the federal minimum wage for covered nonexempt employees is $7.25 per hour and that where state and federal laws both apply, the employee is entitled to the higher rate. Fact Sheet #23 adds that the regular rate cannot be less than the minimum wage. Many states and cities set higher minimums, so check each work location.
Net pay is gross pay minus withholdings and deductions. One set of deductions comes from federal payroll taxes. According to IRS Topic No. 751, the Social Security tax rate is 6.2% for the employee (matched by 6.2% from the employer), and the Medicare rate is 1.45% for the employee (matched by 1.45% from the employer). Employers also withhold an Additional Medicare Tax of 0.9% on wages above $200,000 in a calendar year, with no employer match. The page states that for earnings in 2026, the Social Security wage base limit is $184,500; Medicare has no wage base limit.
Continuing the example, the employee’s Social Security tax on $897.00 is $897.00 × 6.2% = $55.61, and Medicare is $897.00 × 1.45% = $13.01. Federal and state income tax withholding, benefit premiums, and other deductions are then subtracted to reach net pay. Pre-tax deductions can change the wages subject to some taxes, so payroll systems handle these calculations based on each employee’s elections. See net pay.
Employees are more likely to trust their pay when they can see how gross pay was built. A clear pay stub lists each earnings type on its own line: regular hours and rate, overtime hours and rate, differentials, bonuses, and PTO hours. It also shows the pay period dates and, for hourly employees, enough detail to connect the hours to their timecards. When a correction is made after the fact, such as a missed punch added from a prior week, label it so the employee can see which workweek it belongs to. DOL Fact Sheet #23 notes that overtime earned in a workweek must be paid on the regular payday for the period in which it was earned, so late corrections should be the exception, not the routine.
Gross pay is also the figure most employers use for labor cost reporting. Comparing gross wages with sales or revenue for the same period gives a quick view of labor efficiency by location or department.
Gross pay is only as accurate as the hours behind it. EZTime captures time through the GPS mobile time clock with geofencing, NFC tags, tablet kiosk, or biometric clocks; overtime and break alerts catch issues during the week; and timecard corrections keep an audit trail. PTO/absence management records paid leave hours, and payroll-ready Excel/PDF exports send hours by workweek to any payroll software. See the attendance clock and pricing, from $2/employee/month with a 14-day trial.
This is general information, not legal advice.
Gross pay is total earnings before any withholding or deductions. Net pay is the amount the employee actually receives after taxes, benefit contributions, and other deductions.
Yes. Gross pay includes regular wages, overtime pay, and other earnings such as shift differentials, nondiscretionary bonuses, commissions, and paid time off.
Multiply regular hours by the hourly rate, add overtime hours times the overtime rate (at least 1.5 times the regular rate), and add other earnings for the period.
Among others, Social Security at 6.2% and Medicare at 1.45% for the employee, per the IRS, plus federal and state income tax withholding. Employers pay matching Social Security and Medicare amounts.