Gross pay
Gross pay is the total amount an employee earns in a pay period before taxes, benefits, and other deductions are subtracted.
Gross pay covers all compensation paid through payroll in the period, not only base wages. Base pay, overtime premiums, shift differentialsShift differential. A shift differential, also called a shift premium, is extra pay added to an employee’s base wage for working a less desirable shift.Click to open the term, bonuses, commissions, and paid time offPaid time off (PTO). Paid time off (PTO) is a single bank of paid hours an employee draws from for vacation, illness, or personal reasons.Click to open the term paid out in the same check all count. Business expense reimbursements paid under an accountable planAccountable plan. An accountable plan is a reimbursement arrangement that meets three IRS requirements, so business expense reimbursements are not treated as wages.Click to open the term are excluded, since they aren’t compensation for work. Gross pay, also called gross wages or payroll gross, is not necessarily the taxable wages Form W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term reports: each tax narrows it to its own taxable wages.
From gross to net
Payroll builds gross pay first from hours and pay rules, so any overtime premium is already inside it. A traditional 401(k)401(k). A 401(k) is an employer-sponsored retirement plan funded through payroll deferrals the employee elects, usually alongside an employer contribution.Click to open the term deferral then lowers federal income tax wages but not Social Security or Medicare wages. This sequence is the gross-to-net calculation: it runs in a fixed order, not as a single subtraction.
- =Gross payWages, salary, overtime, bonuses, commissions
- −Pre-tax deductionsTraditional 401(k); health premiums and HSA contributions through a Section 125 plan
- =Taxable wagesA separate figure for each tax
- −TaxesFederal income tax, state and local income tax where it applies, FICA
- −Post-tax deductionsRoth 401(k), garnishments, union dues
- =Net payWhat reaches the employee’s account
- Publication 15 (2026), (Circular E), Employer’s Tax Guide
- Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.