Gross pay is the total amount of money an employee earns before taxes and other deductions are taken out. To calculate gross pay, you will need to know the employee's hourly wage or salary, as well as the number of hours they worked (for hourly employees) or their annual salary (for salaried employees).Once you have this information, you can use the following formula to calculate gross pay:
Gross pay = (Hourly wage x Number of hours worked) or (Annual salary)
It is important to note that for salaried employees, you would need to divide the annual salary by the number of pay periods in a year to get the gross pay for that pay period.
Knowing the CTC is important for you as it helps you get an accurate cost of each employee working in your organisation and allows you to accurately project your bottom line financial figures.
Knowing the gross salary helps you structure your salary components better. Since it is the sum of all payments made to the employees, it can help create the right balance of the salary components and also customise the payslip for employees working in different geographies.
While you might feel that you’re offering a high gross salary to your employees, if their net salary is low, it is natural for them to feel demotivated. Knowing the net salary can help you create incentive plans or restructure their salary as a means to revitalise their spirits.
Here is the formula to calculate gross salary from the monthly payslip.
Gross salary = sum of all fixed, variable, direct and indirect salary components that are paid to the employee.
Typically, on your payslip the gross salary components are listed on the left hand side column.
If you are wondering how to calculate the gross salary using the CTC, then that is fairly straightforward as well, using the formula
Gross salary = CTC - (income tax deductions + retiral contributions)
Simply add the tax deductions (income and professional tax) and all contributions to the employee’s retirement savings (provident fund, gratuity, pension plan, superannuation, etc.). Now subtract the result from the overall CTC to get the gross annual salary for the employee. Divide the result by 12 to get the monthly gross.
Annual gross income or the annual gross salary is the sum of all the amounts an employee is entitled to and was paid during the period. The gross salary includes fixed, direct components such as basic pay, and allowances like HRA. Variable elements such as bonuses and incentives are a part of the gross salary too. It also includes indirect benefits such as vouchers, perks, and other reimbursements.
The annual gross income can also be expressed as the CTC minus tax deductions and retirement contributions made by the employer.
Total gross income can be used as a broader term to include the gross annual salary and income from other sources such as house or shop rent, earnings from fixed deposits, mutual funds, or the stock market, etc. The gross income is expressed after deducting all the expenses and exemptions.
For example, in the case of gross salary, the deductions include taxes and contributions made to the retirement fund like provident fund, pension plan, etc.