Gross vs. Net Income

The amount an employee makes before any payroll deductions such as taxes, benefits, wage attachments, and other expenses is known as their gross income. A pay stub's gross income line should include the employee's salary or hourly rate in addition to any reimbursements, bonuses, commissions, and overtime pay. Gross income is calculated as follows:

• Hourly workers - by multiplying the hourly wage by the number of hours worked in a pay period.
• Salary workers - by dividing the yearly salary by the amount of pay periods in the year:
  • Monthly - 12 pay periods
  • Twice a month - 24 pay periods
  • Weekly - 52 pay periods
  • Bi-weekly - 26 pay periods

The amount of an employee's paycheck that remains after deductions from their gross pay is known as their net pay, also known as take-home pay. Payroll taxes, income taxes, health insurance premiums, retirement account contributions, garnishments of wages, and other optional or required deductions are examples of things that are deducted. To calculate the net pay, start by dividing an employee's gross pay (determined by their hours worked or income) by the number of pay periods in the year and the by subtracting the following:

• Health insurance premiums
• Retirement contributions
• Federal, state and local income taxes, including additional withholdings noted on their W-4
• Payroll (FICA) taxes
• Wage garnishments

An HRIS with payroll capabilities can be used to effectively manage the pay scale and different pay grades of employees. It can also be configured to deduct any tax or other deductions automatically so you won’t make any mistakes trying to do it manually. They can also be used to show what an employee’s gross and net pay looks like before taxes and other deductions.