What are gross wages?

Definition

Gross wages are the full pay a person earned for the period, before tax withholding, benefit deductions, or other take-outs. On the books, this is the wage amount that drives the period's wage cost, not the deposit that lands in the employee's bank.

A line cook who works 40 hours at $18 plus $90 of overtime has $810 of base pay here before counted tips. With $40 of counted tips treated as wages, gross is $850 even if take-home is lower after tax and the lunch plan. That $850 is the starting figure on the pay stub.

This amount is not a ledger account of its own. The books record the wage cost and the related liabilities; this figure is the total those entries start from.

Accrual books count the hours in the week they were worked. Cash-basis books may wait until the payday file runs.

Where it shows up

P&L: Related to the wage cost booked before withholdings are split out.

Balance sheet: Related to the withholdings that sit as liabilities until remitted.

Cash flow: Decreases in this account, reported cash from operating activities decreases.

See also: Net Pay · Payroll Register · Payroll Expense

When you look at your Income Statement, you will not see a line titled this way on most small-business statements. You see the wage cost that this total feeds, often in the keep-the-doors-open block or in cost of services for kitchen staff.

When the figure is high, the shop staffed more hours, paid overtime, or counted more tipped wages. When it is low, the week was lighter or a shift went unfilled.

The Balance Sheet does not keep a standing balance of this total after payday. Accrued payroll holds earned wages until the run; payroll tax liability holds the withheld tax until it is remitted.

On the Statement of Cash Flows, the payday deposit and the tax remittance are the cash events. This starting total itself does not move cash.

A month-end cut that falls mid-week still counts the hours already worked. Current liabilities hold the unpaid piece of that total until the next run.

How it works

The cook clocks in, works the posted shifts, and any overtime or counted tips are added. That sum is this figure for the period.

What belongs in gross:

• Regular hourly or salary pay for the period
• Overtime
• Counted tips the employer must treat as wages

The payroll report lists that total next to the take-outs and the take-home amount. The books then post the wage cost from this total, not from the smaller deposit.

Withholdings split the total after it is earned. Federal and state tax, a lunch plan, and similar take-outs reduce what the cook receives; they do not shrink the wage that was earned.

Stay with the starting total when you read this figure. Employer payroll tax sits on top of it as an extra cost, often tracked with labor burden, and is not part of the $850.

Hourly pay, overtime, and wages that include counted tips belong here. A true reimbursed mileage payment is usually not this figure.

After the run, this total has already been the source of the wage cost and the withholdings. Paying the cook later is a settlement of what that total became after the take-outs.

Do not treat take-home pay as the shop's wage cost. The shop's cost starts at this total; the take-home is only the piece that goes to the cook.

Example

The Corner Stool pays its line cook $18 an hour. In one week the cook works 40 regular hours and $90 of overtime ($810), plus $40 of counted tips the shop must treat as wages. Gross wages are $850.

The payday stub then takes out $120 of tax and $30 for the employee lunch plan. Take-home is $700 ($850 − $120 − $30). The wage that was earned is still $850.

The shop records the payday for that cook:

Debit: Payroll expense $850

Credit: Cash $700
Credit: Employee tax withholdings payable $120
Credit: Employee lunch plan payable $30

Payroll expense rises by $850. Cash falls by the $700 take-home. Employee tax withholdings payable rises by $120 and Employee lunch plan payable rises by $30 until those amounts are remitted. Employer payroll tax is a separate entry and is not part of this fence.

Common mix-ups

Gross wages are not the same as take-home pay. Take-home is what is left after withholdings; this figure is the full amount earned.

Gross wages are not the same as the shop's extra payroll tax. That tax sits on top of this total; it is not part of the cook's earned pay.

Gross wages are not a standing Balance Sheet account. They are the source amount for a run; after payday the leftover pieces are liabilities and cash, not this total.

Related terms

• Net Pay: The amount actually paid to an employee after withholdings.
• Payroll Register: The per-run report listing each employee's gross pay, deductions, and net pay.
• Payroll Expense: The wage cost of employees recorded on the income statement.
• Employer Payroll Taxes: The payroll taxes the business owes on top of employee wages.
• Payroll Tax Liability: Withheld and employer payroll taxes owed to tax agencies.
• Payroll Journal Entry: The entry that books a payroll run into the general ledger.
• Accrued Payroll: Wages earned by employees but not yet paid at the end of a period.
• Timesheet: The record of hours worked, used to drive payroll and job costing.