Gross wages comprise the grand total of all earnings by an individual before any deductions have been taken out.
Examples of the components of gross wages are:
- Hourly wages
- Tips
- Commissions
- Piece rate pay
- Overtime
- Sick pay
- Vacation pay
- Holiday pay
- Bonuses
Gross wages are generally considered to be hours worked multiplied by the hourly wage rate, but as you can see from the preceding list, there may be a number of other types of compensation that could be considered gross wages.
As an example of gross wages, Mr. Arnold works 45 hours at an hourly pay rate of $20. His gross wages are $950 (calculated as 40 regular hours x $20/hour, plus 5 hours x $30/hour).
After deductions have been taken from gross wages, the amount remaining, and which is paid to the individual, is called net pay. Examples of deductions from gross wages are:
- Social security tax
- Medicare tax
- Garnishments
- Health insurance
- Dental insurance
- Life insurance
- Pension contributions
- Charitable contributions
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