Gross payroll is the total of every employee’s earnings for a pay period before any taxes or other deductions are taken out. To calculate it, you work out each employee’s gross pay — base wages plus overtime, commissions, bonuses, and tips — then add those individual totals together. The result is what the business owes in compensation for the period, separate from what employees actually take home and separate from the payroll taxes the employer owes on top.
What Counts Toward the Total
Base wages do most of the work in a gross payroll figure. That means the hourly rate multiplied by hours worked, or an annual salary divided across the year’s pay periods.
Overtime is added on top for non-exempt employees. Federal law requires employers to pay at least one and one-half times the regular hourly rate for every hour worked beyond 40 in a single workweek.1Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours
Performance and situational pay belong in the total as well. Commissions on sales, production or year-end bonuses, and tips reported by service workers all count. Tips are taxable earned income and must be reported to the employer so they appear on the worker’s Form W-2.2Internal Revenue Service. All Income Is Taxable, Including Gig Economy and Tip Income Shift differentials for evening or overnight work and hazard pay for dangerous conditions are added the same way. Any dollar of compensation earned through labor during the period belongs in gross pay for that period.
How to Calculate Gross Payroll Step by Step
Hourly Workers
Multiply the hourly rate by regular hours worked, up to 40 in the workweek. For any hours past 40, multiply the hourly rate by 1.5 and then by the overtime hours. Add regular and overtime pay together, and then add any commissions, bonuses, or reported tips for the period.
An employee earning $20 an hour who works 45 hours in one week has $800 in regular pay (40 × $20) and $150 in overtime (5 × $30), for gross pay of $950 before deductions.
Salaried Workers
Divide the annual salary by the number of pay periods in the year. Someone earning $60,000 a year paid biweekly has gross pay of $2,307.69 per period ($60,000 ÷ 26). When a salaried employee starts or leaves partway through a period, prorate by dividing the period salary by the number of workdays in that period and multiplying by the days actually worked.
Rolling It Up
Add each employee’s gross pay together. That sum is the company’s gross payroll for the period. It is also the wage figure the employer reports on IRS Form 941 each quarter, alongside tips received and taxes withheld.3Internal Revenue Service. Instructions for Form 941 (Rev. March 2026)
Who Belongs in the Calculation
Only workers classified as employees go into gross payroll. Independent contractors handle their own taxes, and the business does not withhold income tax or pay Social Security and Medicare taxes on their behalf. The IRS looks at three categories to draw the line: whether the business controls how the work is done, whether the business controls the financial side of the arrangement (how the worker is paid, who supplies tools), and whether the relationship includes benefits like insurance or a pension.4Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
No single factor decides it. Misclassifying an employee as a contractor can trigger back taxes, penalties, and interest, so it’s worth resolving before the first paycheck.
From Gross Pay to Net Pay
Gross pay is the starting line. Several deductions come out before the employee sees a paycheck.
Federal income tax withholding is set by the Form W-4 each employee submits, which reflects filing status, dependents, and any additional adjustments.5Internal Revenue Service. Form W-4 (2026)
FICA takes another 7.65% from the employee: 6.2% for Social Security and 1.45% for Medicare.6Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax The Social Security portion applies only to wages up to $184,500 in 2026; earnings above that cap are not subject to the 6.2% tax.7Social Security Administration. Contribution and Benefit Base The 1.45% Medicare tax has no cap, and an additional 0.9% Medicare tax kicks in once an employee’s wages pass $200,000 in a calendar year.8Internal Revenue Service. Topic No. 560, Additional Medicare Tax
Most states levy their own income tax, and some cities and counties add a local tax. Employers withhold based on where the work is performed. Court-ordered wage garnishments come out of disposable earnings; federal law caps ordinary consumer-debt garnishment at the lesser of 25% of disposable earnings or the amount by which weekly disposable earnings exceed 30 times the federal minimum wage.9Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment
Voluntary deductions come last: 401(k) contributions, health insurance premiums, dental or vision, life insurance, flexible spending accounts. Many are taken pre-tax, which lowers the wages subject to income tax withholding but does not change the gross pay figure itself. Whatever remains after mandatory and voluntary deductions is net pay.
Employer Taxes Built on the Gross Figure
Gross payroll drives what the business owes in employer-side taxes, which sit on top of wages rather than coming out of them.
The employer matches the employee’s FICA dollar for dollar: 6.2% for Social Security (subject to the same $184,500 cap in 2026) and 1.45% for Medicare.3Internal Revenue Service. Instructions for Form 941 (Rev. March 2026) The additional 0.9% Medicare tax is not matched; it falls entirely on the employee.
Federal unemployment tax (FUTA) is 6.0% on the first $7,000 of each employee’s annual wages.10Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return Employers who pay their state unemployment taxes on time get a credit of up to 5.4%, which usually brings the effective FUTA rate down to 0.6% — a maximum of about $42 per employee per year.11Internal Revenue Service. FUTA Credit Reduction
State unemployment tax (SUTA) is separate. Rates and taxable wage bases vary by state, and new employers typically start at a default rate that adjusts based on the company’s history of unemployment claims.
Records the Number Depends On
Employers report wages paid, tips received, and employment taxes on Form 941 each quarter. Filing deadlines are April 30, July 31, October 31, and January 31 for the prior year’s fourth quarter. If all taxes were deposited on time, there’s an extra 10 calendar days to file.12Internal Revenue Service. Employment Tax Due Dates
By January 31 each year, employers must give every employee a Form W-2 showing total wages and withholdings for the prior year and file copies with the Social Security Administration by the same date.13Social Security Administration. Deadline Dates to File W-2s
Federal labor law requires payroll records — hours worked, pay rate, and total wages for each non-exempt employee — to be kept for at least three years. Supporting documents such as timecards, work schedules, and wage rate tables must be kept for at least two years.14U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the FLSA Clean timekeeping is what makes the gross payroll calculation defensible if it’s ever questioned.