The difference between gross pay and net pay
Managing global payroll for your organization, especially for a globally remote team, is challenging. You are tasked with paying employees in different countries, navigating various countries' payroll laws, and dealing with country-specific statutory deductions. In addition, you are required to make accurate and timely payments for your employees.
To fully understand the complexities of global payroll processes for your remote team, it is essential that you are familiar with the basic payroll concepts. That said, the gross pay and net pay are important payroll concepts to be familiar with.
This article highlights the meaning, differences between gross and net pay, how they relate to each other and how organizations can utilize a global payroll solution in handling payroll for global remote teams.
Gross pay is the amount of money an employee earns before the statutory deductions have been made. These deductions include taxes, benefits, and payroll deductions withheld from their salary.
How to calculate gross pay
Calculating gross pay is hugely dependent on how the employee is being paid. While some employees are paid hourly, some are paid weekly, biweekly or monthly.
For monthly, weekly, or biweekly employees…
Employees who receive payments monthly or weekly are usually referred to as salaried employees. Therefore, the gross pay is equal to their annual salary divided by the number of times they get paid in a year (pay periods) for salaried employees.
Gross pay = annual gross pay / total number of pay periods in a calendar year.
For example, if the annual gross pay of an employee is $12,000 and you want to calculate the monthly gross pay, you divide $12,000 by 12. The result will give you the employee's gross pay of $1,000.
The pay periods are 52 and 26 for weekly and biweekly, respectively.
For hourly-paid workers…
To calculate the gross pay for workers paid by the hour, multiply the hourly rate by the number of hours worked in the given pay period.
Gross pay = gross hourly rate * amount of hours worked in the given pay period.
For example, if a worker works for 39 hours at an hourly rate of $12/hour, their gross pay will be $12 multiplied by 39, which will result in a gross pay of $468.
The net pay is the amount the employee gets to take home after removing all the statutory deductions. These deductions may be voluntary or mandatory.
How to calculate net pay
The gross pay has to be calculated first, following the methods mentioned above to calculate an employee's net pay. Afterwards, you subtract all the deductions from the gross pay.
Do you need a global payroll solution for your business?
Payroll is challenging. For global remote teams, payroll is complicated, strenuous, and time-consuming. While understanding the gross and net pay is great, it is essential to be well-versed in properly managing payroll for your global remote team. A global payroll solution is one of the best means to handle payroll efficiently.
A global payroll solution like Skuad enables you to make accurate and timely payments to your employees wherever they are in the world. In addition, your employees can receive payments in their preferred currencies with no hassles.
To know more about Skuad's global payroll solution, book a demo today.