Paychecks and payrolls often leave many employees in confusion as to what is gross pay vs net pay. Employers not managing their company’s payroll undertaking the task by at times has confusions. They don’t know how to calculate gross pay for deriving the net pay amount.
This blog will share insights on the basic terms. Also, we’re sharing how to calculate gross and net pay for waged and salaried employees. Have a look!
What is Gross Pay?
Gross pay is the total amount earned by the employee without having any taxes or deductions subtracted from it. For instance, if you say ‘I can hire you with a $70000 per year package’ then $70000 is the gross amount.
What is Net Pay?
Net pay is the amount that the employee takes home at the end of every pay period. It is the amount that is reflected after deductions like social security tax, insurance, medical taxes, and any other deductions. Following the above instance, your employee may take $67000 on payday after taxes are a deduction from his pay.
Gross Pay vs. Net Pay: Formulas
Here is the formula for calculating the gross and net pay of hourly-based and salary-based employees. Net pay can be simply achieved by deducting the withheld amounts from the gross pay.
- Gross Pay for Hourly Employees = Hourly Rate * Total No. of Hours Worked
- Gross Pay for Salaried Employees = Annual Salary/Number of Pay Periods
- Net Pay = Gross Pay – Deductions
How to calculate gross pay vs. net pay?
Apply the above-mentioned formula to get the gross pay for your employees. Make sure you know if your employee is being paid weekly, bi-weekly, semi-monthly, or monthly. It will help you calculate the amounts with precision.
For instance, if the hourly rate is $20 and the total number of hours worked is 40, the gross pay will be $20 * 40 = $800. This is for the waged employee.
For the salary-based employee, salary + any overtime, if applies, is added to the payment amount too. Let’s say, for example, the total of 4 weeks’ pay + overtime.
By the time you’re reading this, you’re now clear with How do I calculate gross pay for a salaried employee? At least your basics are clear!
After calculating the gross pay and net pay, what should be your next step? Recording it for your employees and creating paystubs, isn’t it?
Where to record gross and net pay?
Gross and net pay are recorded in the paycheck stubs. They’re handed over to employees on payday. Paystubs have a complete breakdown of the gross pay and how it is derived as net pay. It includes all the deductions made from the paycheck including FICA taxes, Federal Tax, State Tax, etc. Any bonus or overtime added to the pay is also mentioned in the paycheck. Besides this, YTD amounts like YTD Deductions and YTD Net Pay are also clarified.
In short, a check paystub is where employees get clarifications on how their net pay is calculated by the employer.
How do I calculate my employee’s net pay?
Even if we tell you it is extremely easy to calculate your employee’s net pay, any entrepreneur will hardly have the courage to do it. After all, you have a lot more core activities to focus on. It’s not convenient to manually calculate hundreds of paystubs. It is a time-consuming matter.
If this is less, you’ll have to spend hours in recalculations if any error prevails. Entertaining complaints is unbearable when you have heaps of work pending that holds more priority.
What if we tell you that you can derive net pay by just entering the basic details of your employee, firm, and the gross pay amounts only? It feels dreamy. Not anymore!
You can now create pay stubs within a few minutes only. Online paycheck stub generator is the automated calculator for getting flawless, error-free & professional paystubs without actually performing any calculations. This tool is created and verified by American Professionals and is like a boon for the corporate world.
No matter if you want to create paychecks for employees or a contractor, this one tool is enough to get the job done.
Final Thoughts
Let’s not waste time talking about it and take you through our paystub generator right now. You need this tool by your side to make every payday feel like a breeze.
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