0 hidden charges. 0 forex

How To Calculate Gross Pay for Employees?

Reviewed by
Created on
January 31, 2023


What’s Inside

Gross pay is the total 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). Based on this knowledge you can use the formula for gross salary calculation to determine the exact figure (formula for gross salary shared further in the blog).

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 salary for that pay period.

Important Salary Terms To Understand


  • CTC stands for cost-to-the-company.
  • It is the total cost of an employee, including basic pay, allowances, overtime, bonus, medical or health insurance, meal vouchers, mobile phone or internet reimbursements, income tax, and provident fund contributions.
  • Knowing the CTC helps you accurately project your bottom line financial figures for each employee in your organization.

- Gross Salary

  • Gross salary is a part of CTC that includes all components paid directly or indirectly to the employee.
  • These components can be fixed (such as basic or HRA) or variable (such as annual performance bonus).
  • Simply put, gross salary is CTC minus deductions.
  • Knowing your gross salary can help in structuring your salary components and customizing payslips for employees in different locations. This can be determined easily by using the formula to gross salary calculation mentioned below.

- Net salary

  • Net salary = gross salary - tax deductions and contributions to employee retirement pool (e.g. provident fund, gratuity, pension scheme)
  • A high gross salary doesn't always translate to a high net salary, which can demotivate employees.
  • Understanding net salary can inform incentive plans or salary restructuring to boost morale.

Common Salary Components

  • Basic pay – the main portion of gross salary, entirely taxable
  • Allowances – different types of allowances, such as House Rent Allowance (HRA), conveyance allowance, medical allowance, entertainment allowance, and special allowance. HRA is tax-exempted and can increase the net salary of the employee.
  • Benefits – perks or benefits offered to employees, such as meal vouchers, insurance premiums, gym or club subscriptions, etc. Check tax liability before offering benefits.
  • Bonus or incentives – variable component offered to boost employee performance, usually paid annually.

Calculating Gross Salary - Two Ways

1. Formula for Gross Salary derived from the Monthly Payslip

Gross salary = sum of all fixed, variable, direct and indirect salary components that are paid to the employee.

Gross pay = (Hourly wage x Number of hours worked) or (Annual salary)

Typically, on your payslip the gross salary components are listed on the left hand side column.

2. Formula for Gross Salary derived from Annual CTC

If you are wondering how to calculate the gross salary using the CTC, you can use this formula for gross salary calculation as below:

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 gross salary for the employee. Divide the result by 12 to get the monthly gross.

Frequently Asked Questions

1. What is annual gross salary?

Annual gross salary is the total amount an employee earns in a year, including fixed components like basic pay and allowances such as HRA, as well as variable elements like bonuses and incentives, and indirect benefits such as vouchers and perks. It can be calculated as CTC minus tax deductions and retirement contributions made by the employer.

2. What is total gross income?

Gross income is the total income from various sources after deducting expenses and exemptions. In the case of gross salary, it includes taxes and retirement fund contributions.

3. How do you calculate annual gross salary from net salary?

To calculate annual gross salary from net salary, you need to know the tax deductions and contributions to employee retirement savings. Subtract these from the net salary to get the gross salary.

4. What is the formula of annual gross salary in Excel?

The formula for calculating gross salary in Excel is the sum of all fixed, variable, direct, and indirect salary components that are paid to the employee.

5. What is an example of an annual gross salary?

For example, if an employee's basic pay is ₹3,00,000 per year and they receive an HRA of ₹1,50,000 per year, their gross salary would be the sum of these two components, which would be ₹4,50,000 per year.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
Share this article
Copied Link!
Work & Money
How To Calculate Gross Pay for Employees?


View similar articles in
Work & Money
Get the Fi app