Gross Salary
Gross salary is the total income earned by an employee before any deductions are made for things like taxes, social security contributions, health insurance premiums, retirement contributions, and other items. It’s typically the figure quoted in a job offer and is often the basis for calculating benefits and other forms of compensation.
Example of Gross Salary
Let’s say an individual, Bob, is hired as a software engineer at a technology company. His offer letter states that his annual salary is $85,000. This is his gross salary.
However, this doesn’t mean that Bob will take home $85,000 over the course of the year. There will be deductions made from his gross salary for things like taxes, social security, and possibly contributions to health insurance or a retirement savings plan.
For example, let’s say these deductions break down as follows over the course of the year:
- Federal income tax: $17,000
- State income tax: $4,250
- Social Security and Medicare: $6,505
- Health insurance premiums: $1,200
- 401(k) retirement contribution (which Bob opts to do): $4,250
So the total deductions from Bob’s gross salary would be: $17,000 + $4,250 + $6,505 + $1,200 + $4,250 = $33,205.
To find out what Bob’s net salary, or take-home pay, is, you would subtract the total deductions from his gross salary: $85,000 – $33,205 = $51,795.
So even though Bob’s gross salary is $85,000, his net salary (what he actually takes home) is $51,795. This demonstrates how gross salary doesn’t represent the amount an employee actually receives after various deductions are taken into account.
