Definition: Gross salary can be defined as the amount of money paid to an employee before taxes and deductions are discounted. It is the gross monthly or annual sum earned by the employee.
What Does Gross Salary Mean?
Gross salary is determined by the employer when the job is offered. This gross salary might come from different sources such as wage, commissions, tips, bonuses and any other economic incentive received as part of the wage and it is the baseline for any calculation made regarding the employee’s income.
The gross salary doesn’t take into account deductions or taxes that are taken out after the payment is issued, because it is the pre-negotiated amount of money stipulated at the job contract. Later on, the gross salary will be reduced by these deductions, to comply with federal or state laws or also, to pay for any other financial commitments taken by the employee that are directly taken off its gross income.
The gross salary figure helps the employee compare its level of compensation with the market average to see if his salary is competitive and rewarding, in relation to similar industry peers. On the other hand, gross salary serves as a measure to determine the employee’s payment capacity, to engage in any debt commitment.
Example
Mr. Lemon is a Graphic Designer at an online shop called Sportgear.com. The company offers fitness and sport products online to customers all over the world. Mr. Lemon’s job is to design the product images that go into the website and when he accepted the job he negotiated a salary of $3,500 a month.
Last month, Mr. Lemon approached the Human Resources Manager to ask why he got paid $2,950 instead of the $3,500 that he signed up for. The manager explained to Mr. Lemon that even though his gross salary was $3,500, this figure is reduced by a charge of $350 a month for tax purposes and another $200 are deducted for health insurance.
