What is Gross Payroll?

July 16, 2024
Julie Ogilvie SEO Team

Employers and employees need to understand the dynamics of gross payroll. It represents employees’ total earnings before any deductions such as taxes, benefits and other withholdings. It’s also an important part of financial planning, budgeting, and ensuring compliance with employment regulations.

Accurate calculation of gross payroll is essential for employers to manage expenses and maintain financial stability. For employees, it gives them a clear picture of their earnings, helping them plan their finances better and understand their compensation.

How to Calculate Gross Payroll

To calculate gross payroll in Canada, follow these comprehensive steps:

Identify the Employee’s Gross Wage. Determine the employee’s gross wage, which includes their hourly wage, salary, commissions, bonuses and any other form of compensation. This forms the basis of the gross payroll calculation.
Calculate Regular Hours Worked. Multiply the number of regular hours worked by the employee’s hourly wage. For salaried employees, simply use their agreed-upon salary for the pay period.
Add Overtime Pay. Overtime in Canada is generally calculated at one and a half times the regular hourly rate for any hours worked beyond the standard 40 hours in a week, though this may vary by province. Make sure to comply with provincial employment standards and multiply the hours of overtime by the overtime pay rate.
Include Additional Earnings. Add extra earnings such as commissions, bonuses or allowances. Also, include taxable benefits like vehicle allowances or housing stipends.
Accumulate Pay Period Earnings. Sum all the earnings for the pay period. This includes regular pay, overtime pay, and any additional earnings.
Consider Non-taxable Benefits. Identify any non-taxable benefits or reimbursements, including certain health benefits or travel expenses. While these are not included in the gross payroll for tax purposes, they’re necessary for understanding total compensation.

Example of Gross Payroll Calculation

If an employee works 40 regular hours at $20 per hour and five overtime hours at the overtime rate of $30 per hour, their calculation would be:

Regular Pay. 40 hours * $20/hour = $800
Overtime Pay. 5 hours * $30/hour = $150
Gross Payroll. $800 (regular) + $150 (overtime) = $950

Consider Provincial Variations

Different provinces may have varying regulations regarding overtime, statutory holidays and other elements that affect gross payroll. Staying updated with the provincial labour standards is essential for accurate payroll calculations.

By following these steps, employers can accurately calculate gross payroll, ensuring they remain compliant with Canadian payroll regulations while providing their employees clear and precise earnings information.

Difference Between Net Pay and Gross Pay

Gross Pay

Gross pay is an employee’s total money before deductions or taxes are taken out. It is the starting figure that is agreed upon either annually, hourly or per project as compensation for employment or services provided by the employee. Gross pay is the amount stated in the employment contract and is the basis for calculating various deductions.

What Is Included in a Gross Payroll?

Regular Wages/Salary. This includes the basic hourly wages or salary the employee earns.
Overtime. Typically, this is calculated at a higher rate than regular wages, often 1.5 times the normal rate, and applies to hours worked beyond the standard workweek (which varies by jurisdiction, typically 40 hours in Canada).
Bonuses. These could be performance bonuses, year-end bonuses or other incentive payments.
Commissions. Earnings from sales or other performance metrics are typically a percentage of the total amount sold.
Other Earnings. These may include tips, stipends or other forms of compensation such as back pay, retroactive pay increases, or holiday pay.

Net Pay

Net pay, commonly referred to as “take-home pay,” is the amount of money an employee receives after all deductions from the gross pay. This is the money that the employee can spend.

What Is Included in a Net Pay?

Federal Income Tax. Income taxes are determined by the federal tax brackets and rates based on the employee’s taxable income.
Provincial Income Tax. It is similar to federal income tax but varies depending on the province or territory. Each jurisdiction has its tax brackets and rates.
Canada Pension Plan (CPP). Contributions to the CPP provide contributors and their family members with partial earning replacement in the eventof retirement, disability or death. Almost every person who works in Canada outside Quebec contribute to the CPP.
Quebec Pension Plan (QPP). Similar to CPP, but applicable only to employees working in Quebec.
Employment Insurance (EI). Provides short-term financial aid for unemployed Canadians while they find work or improve their skills.
Quebec Parental Insurance Plan (QPIP). This plan is mandatory in Quebec and provides eligible workers maternity, paternity, parental and adoption benefits.

Common Optional Deductions

Retirement Savings Plan Contributions. The employer may match contributions to retirement plans such as a Registered Retirement Savings Plan (RRSP) or a pension plan.
Health Insurance Premiums. If the employer provides health benefits, part of the premium may be deducted from the employee’s pay.
Dental Insurance. Deduction for dental plan contributions if the employer provides such benefits.
Life and Disability Insurance. Premiums for life and disability insurance policies are offered through an employer.
Union Dues. Employees who are union members will have their dues deducted from their paychecks.

How to Calculate Net Pay

Start with Gross Pay. Begin with the total gross pay that was calculated, which includes all regular, overtime and additional earnings.
Deduct Federal and Provincial Taxes. Calculate the appropriate provincial and federal taxes to be deducted based on the current tax brackets and the employee’s payroll province.
Subtract CPP Contributions. Deduct the Canada Pension Plan (CPP) contributions, a percentage of the employee’s gross earnings up to an annual limit.
Deduct Employment Insurance (EI) Premiums. Subtract the Employment Insurance (EI) premiums, calculated as a percentage of the employee’s gross earnings up to an annual maximum.
Subtract Additional Withholdings. Deduct any additional withholdings such as contributions to retirement contributions, union dues or other agreed-upon deductions.
Account for Health and Other Benefits. Deduct the employee’s portion of health, dental or other benefit premiums, if applicable.
Consider Other Payroll Deductions. Subtract other payroll-related deductions necessary for the specific employment scenario, including garnishments or childcare expense deductions.
Calculate Total Deductions. Sum all the deductions from steps 2 through 7 to get the total deductions for the pay period.
Subtract Total Deductions from Gross Pay. Finally, subtract the total deductions from the gross pay to determine the employee’s net pay.

FAQs About Gross Payroll

Why is Gross Payroll important for businesses?

Gross payroll is needed for budgeting, financial planning, tax reporting and compliance with labour laws and regulations.

Are taxes deducted from Gross Payroll?

Yes, various taxes such as federal income tax, state income tax, Social Security and Medicare are deducted from gross payroll to determine net pay.

Are there regulatory requirements for reporting Gross Payroll?

Employers must report gross payroll amounts to tax authorities through various tax filings such as W-2s, 1099s and quarterly tax returns.

Do differences in Gross Payroll affect employee benefits?

Yes, benefits like retirement plan contributions, health insurance and others often depend on the gross payroll amount.

How often is Gross Payroll calculated?

Gross payroll is generally calculated for each pay period, whether weekly, bi-weekly, semi-monthly or monthly, depending on the company’s payroll schedule.

How can employers manage Gross Payroll effectively?

Employers may use payroll software, outsource payroll services or maintain meticulous financial records to manage gross payroll effectively.

Can Gross Payroll vary from one pay period to another?

Yes, gross payroll can vary due to factors like overtime, bonuses, unpaid leave or changes in salary rates.

How are retroactive pay adjustments accounted for in Gross Payroll?

Retroactive pay adjustments are added to the gross payroll of the period they are paid out, though they may relate to prior pay periods.

Kevin Martin Accounting Provides Expert Gross Payroll Services

Hire Kevin Martin Accounting for your gross payroll needs to ensure your business runs smoothly and remains compliant with all payroll regulations. We provide quality solutions to simplify payroll management, reduce errors and save you valuable time.