PAYROLL GLOSSARY
Gross Pay
Definition: Gross pay is the amount an employee earns before taxes, withholding, and other deductions are taken out.
Gross pay is the starting point on a pay stub. It is the wage amount payroll begins with before federal income tax withholding, Social Security tax, Medicare tax, state income tax, health insurance, retirement contributions, or other deductions are applied. For salaried workers, gross pay is usually annual salary divided by the number of pay periods. For hourly workers, it is hourly rate multiplied by hours worked, plus overtime or premiums where applicable.
The IRS payroll tutorials use gross pay as the amount the employee earns, and then distinguish it from net pay or take-home pay after deductions. That difference matters because many payroll questions come from comparing gross salary to a much smaller take-home amount without first separating taxes from voluntary deductions such as 401(k) contributions or HSA elections.
When you compare jobs or review a raise, use gross pay for compensation planning and net pay for cash-flow planning. Both matter, but they answer different questions.