Definition: Gross wages are the total amount paid during a period by an employer to an employee prior to any withholdings, taxes, and deductions.
What Does Gross Wages Mean?
What is the definition of gross wages? The gross wages are the total amount an employee receives from an employer when they are paid for their employment services. This amount depends on employment status (full-time versus part-time), and wage rate (salary versus hourly). Typically, a variety of withholdings, deductions, and taxes will be removed from the total wages to arrive at the net payactually received by the employee each pay period.
What are gross wages and where will I see them recorded? The amount of the withholdings, deductions, and taxes depend on many different variables including where the employee lives, their tax bracket, participation in employee sponsored healthcare or retirement plans, and other factors that may requirement a reduction to the wages. The total wages for the year are reported to employees each period on their paystubs. This is typically the largest number on a paystub found on the top portion.
Let’s look at an example.
Example
Let’s keep it simple, and take a look at two employees who work for the same company. Employee A is a salary employee, and he has an employment contract with their employer that states that he earns a salary of $52,000 per year.
Employee B is an hourly employee and has an employment contract that states he earns an hourly rate of $15.00 per hour.
If the employer pays employees on a weekly basis, and both employees worked a full 40 hours during the week and had $200 deducted from their paychecks for health insurance, what is the gross wage amount for each of the employees?
The answer: Employee A earned total wages of $1,000 during the week, or $52,000 annual salary / 52 weeks per year = $1,000 per week.
Employee B earned $600 in total wages during the week, or $15.00 per hour × 40 hours during the week = $600 total wages.
The health insurance deduction is not factored into this calculation.
Summary Definition
Define Gross Wages: Total wages means to full amount paid by an employer to an employee for services performed by the employee.
