What are Gross Wages?
Definition: Gross wages are you overall earnings from your employer before any type of payroll deductions.
What comes to mind when someone says to you, ‘your gross salary is X amount of money?’ Well, a majority of people just walk away in content and perhaps without getting down to the details of what it entails. A gross wage plays a significant role in attracting the right kind of people to any job. It is the exclusive amount of money offered to an employee before any deductions such as taxes are affected.
However, the amount is also dependent on whether or not the employment was full time, part-time, or on a wage rate. All the same, each employment status attracts a specific deduction from the total wages. The deductions eventually determine what an employee takes home as their pay.
Gross Wage Calculation Example
Emmy and Winnie work for the same employer. Emmy is on a yearly contract of employment and earns $62,000 per year. Winnie works on an hourly basis, whereby she receives $20.00 per hour. The two employees work for 40 hours every week and have a $500 deduction from their wages for medical insurance.
Therefore Emmy’s gross salary will be:
$62,000 (Annual Salary)/52weeks in a year = $1,192.31 per week
Winnie’s gross salary will be: –
$20.00 per hour x 40 hours weekly = $800.
NOTE: The $500 deduction of medical insurance has not been enforced yet from their wages.
What Constitutes a Gross Wage?
Gross wages come in bulk of several components and must be reflected on the payroll. They include overtime, sick pay, vacation and holiday pay, commissions, bonuses or piece rage pay, tips, hourly wages, and salaries and any other pre-arranged employee benefits.
The total of all these attracts various deductions. They are health insurance, pension contribution, medical tax, dental insurance, charitable contributions, social security taxes, and life insurance. What remains is known as net pay and what the employee gets on payday.
You should care more about the net pay than gross pay!
At the point of being offered a job, many people tend to pay more attention to gross pay than the net salary. Well, this may sound theoretically right, it is theoretically wrong. Remember, you will not take home the gross the pay but the net pay. Hence, you should care more about the latter and not the former. It is because it has a better indicator or how much you will, and to some extent, it helps come up with a clear measure of your expenses.
Also remember the discrepancy, which arises in tax rates for single and married taxpayers. You may be single and earning the same gross income with a married person with two children. If you are both receiving a total pay of $60,000 with a benefit deduction of $100, the single person will take home around $42,000 while the married one will have a net income of $44,770. The tax exemptions of having children protect him.
Net Income in a Business vs Gross Wages
It implies to the profit a business makes after effecting all the expenses. It is what remains; hence it is commonly referred to as the “bottom line” and the fact that it also appears at the bottom of an income statement. Expenses of business would include employees’ wages, taxes, depreciation, loan repayment, and cost of raw materials.
The production of a net income by any business showcases its viability and the potential of remaining competitive. Net income also eases financing, and any consistent firm or business has the upper hand in commanding a share of the market. Such companies are not only prestigious, but they also able to attract the right talents, can pay their employees well, attract investors, expand, and are generally successful.
However, most of the successful businesses tend to plow back all the created income into the business. The result is that the cash at hand is usually lower at the end of the trading period than at the beginning.