Most of us are familiar with two terms typically known as net pay and gross pay. They sound the same, but it is not so. There are some key differences between them. Depending on the payroll deductions, a worker or employee’s net pay may be significantly lower than their gross pay. This article is going to cover everything that you need to need to know about gross pay and net pay in QuickBooks.
Difference between gross pay and net pay:
When a new worker or employee joins a job, he gets a negotiated salary which is a typical figure that is determined before tax. This salary is known as gross pay. The primary paycheck received includes the net pay amount before tax. Gross wages are the amount before tax, and net pay is the sum of the amount after tax.
It is a common practice for the new employees out there to accept an offer depending on gross pay. It is typically difficult for an employer to make a job offer based on net pay, as tax withholdings differ from one employee to the other. Thus, an employer needs to discuss the differences between gross pay and net pay before making a job offer, as it can lead to frustration on both sides. If you are opting for QuickBooks services, calculating them will be comparatively easier.
How to calculate?
It is necessary for the job candidates and the employers to calculate net and gross pay before opting for an offer. There are different payroll calculators out there that will help to determine gross and net pay. So, it is important to understand the formula.
For hourly wages, you will need to determine the working hours. Consider the absences or other causes for irregular hours, if any. Now, determine the pay rate, and consider the additional income, like overtime. Multiply hours worked by the amount earned.
For salary pay, all you need to do is divide the annual salary by the number of pay periods each year. For example, an employee earns $32,400 per year at a business with 24 pay periods and earns $1,350 in gross pay each period. Calculate their gross pay. Over here, the employee works full-time and earns $32,400 annually. Their company makes use of a semi-monthly pay structure ensuing in 24 pay periods. You only need to divide the numbers to get the answer.
Annual salary / pay structure = gross pay
32,400 / 24 = 1,350
All deductions and withholdings are calculated from the gross pay. All the deductions need to be determined, including all kinds of taxes. The net pay formula:
Net Pay = Gross Pay – Deductions
For example, an electrician wants to calculate his net pay. He earns $40,000 annually, and he lives in Colorado.
Annual salary = $50,000
Federal Income Tax = -$4,233
FICA Tax= -$3,825
CO State Tax = -$1,915
Net Pay = 50,000 – 4,233 – 3,825 – 1,915
What to consider before grossing up a paycheck?
When receiving up a paycheck, you need to consider the following:
- The taxes’ employee portion can be paid by the company. You can choose to make a deduction item for the tax paycheck, or you may also choose not to charge the employee.
- If you are adjusting the Federal and State Income Tax, it can affect the tax filing of your year-end. Before making any changes, you should consult your employees.
How to gross up a paycheck in QuickBooks?
To gross up a paycheck in QuickBooks, follow the given below steps:
Step 1- Locate the “Employees,” tap on it.
Step 2- From there, click on “Pay employees.” You may choose either “Unscheduled payroll” or “Scheduled payroll.”
Step 3- Put a check alongside the member whose paycheck you want to gross-up in the “Enter Payroll Information” window.
Step 4- Now, click on “Open Paycheck Detail.”
Step 5- Input a bonus or salary payroll item with no rate in the “Earnings” section in the “Preview Paycheck” window.
Step 6- Remove if any other payroll items are listed because other types of an item may not work.
Step 7- Place a check in the “Calculate gross” checkbox. Though QuickBooks estimates as well as deducts the correct taxes, selecting “Enter net/ Calculate gross” will enable you to provide employees the full sum as their net pay.
Step 8- Finally, click on “Save & Close” and follow the procedures to pay your employees.
If you want to use an hourly piece of work or an additional item as the earning item, you will need to make use of the trial-and-error method to calculate the gross.
Step 1- Input a gross amount that is more than the desired net in the “Earnings” section. Then, to calculate the net, press the “Tab” key on your keyboard.
Step 2- Under “Earnings,” adjust the gross amounts until you get the required net amount.
Gross pay and net pay often sound interchangeable, but from the article, you can identify the differences between gross pay and net pay. The difference between an individual’s gross pay and net pay can be vast, based on their withholdings and deductions. QuickBooks’ payroll service makes most of these calculations automatically and also takes care of federal and state taxes.