Gross Wages

Gross wages, also called gross pay or gross earnings, are the total amount an employee earns in a pay period before any deductions are taken out. They include regular pay for hours worked or salary earned, overtime, shift premiums, commissions, bonuses, holiday pay and taxable benefits. Gross wages are the starting point of every payroll calculation: income tax withholding, Social Security and Medicare taxes and most voluntary deductions are calculated from them, and the amount the employee actually receives is called net pay or take-home pay.

For employers, gross wages are the main measure of labor cost recorded as salaries and wages expense. They are not the full cost of employment, however, because employers also pay their own share of payroll taxes and the cost of benefits on top. The broader idea of income before deductions is described in the entries on gross and gross annual income.

For hourly workers, gross wages are hours worked multiplied by the hourly rate, plus any overtime. Under the US Fair Labor Standards Act, nonexempt employees must receive at least one and a half times their regular rate for hours worked over 40 in a workweek, and never less than the minimum wage for any hour. For salaried workers, gross wages are the annual salary divided by the number of pay periods, for example 26 for biweekly pay or 24 for semimonthly pay.

Consider a warehouse worker paid $22 per hour who works 46 hours in a week and earns a $50 attendance bonus. Regular pay is 40 hours times $22, or $880. Overtime is 6 hours times $33, or $198. Because the bonus is non-discretionary, it must be included in the regular rate for overtime purposes, adding a further 6 times half of $50 divided by 46, or about $3.26. Gross wages are therefore about $880 plus $198 plus $50 plus $3.26, which equals $1,131.26.

Several deductions are taken from gross wages before the employee is paid:

• Federal income tax withholding, based on the employee's Form W-4, and state and local income tax where applicable.
• Social Security tax at 6.2 percent on wages up to an annual wage base, which is $184,500 for 2026, and Medicare tax at 1.45 percent on all wages, with an extra 0.9 percent on wages above $200,000.
• Pre-tax deductions, such as traditional 401(k) contributions and health insurance premiums under a cafeteria plan, which reduce taxable wages.
• Post-tax deductions, such as Roth 401(k) contributions, union dues and court-ordered garnishments.

Pre-tax deductions mean that "taxable wages" can be lower than gross wages. A worker with gross wages of $2,000 who puts $150 into a traditional 401(k) has $1,850 of wages subject to federal income tax withholding, although Social Security and Medicare still apply to the full $2,000.

When payroll is processed, the employer debits wages or salaries expense for total gross wages and credits separate liability accounts for each withholding and deduction, with the remainder credited to cash or wages payable. The employer then records its own employer payroll taxes, such as its matching Social Security and Medicare and federal and state unemployment taxes, as an additional expense. Amounts withheld for retirement plans are held as a liability such as 401(k) payable until deposited. At a period end that falls between paydays, earned but unpaid gross wages are recorded as accrued payroll.

Gross wages appear on the employee's pay stub and, summed for the year, on Form W-2, though the W-2 shows several wage figures because of pre-tax deductions. Lenders and landlords usually ask for gross rather than net income when assessing applications. For employers, accurate gross wage calculations are essential: errors in overtime, especially omitting bonuses from the regular rate, are a frequent cause of wage claims. Gross wages also drive many benefit costs and workers' compensation premiums, which are typically calculated as a rate per $100 of payroll, making gross wages a central figure in labor budgeting and in managing payroll disbursement.