Whether you are just starting your first job or already dreaming about retirement, learning how to read your pay stub and understand your compensation is vital to your financial well-being. Employers use a number of terms when speaking about employee paychecks, including gross base pay, net pay and overtime pay.

Gross vs. Net

There can be a big difference between the gross amount your employer pays and the amount you actually see in your paycheck. The gross base pay is the amount your employer actually paid to employ you for the standard hours you worked during the pay period. Your net pay, on the other hand, is the amount left over after all taxes, health insurance premiums, retirement plan contributions and other deductions have been taken out.

Base vs. Overtime

If you are eligible for overtime pay, you actually have two different pay rates. Your base pay amount is the amount you make per hour of work. You should have received this hourly wage information when you were offered the job. Your overtime amount is equal to one and a half times the amount of your base pay when you work more than 40 hours in a week. That means if your base pay is $10 per hour and your boss asks you to work 50 hours in a week, those 10 extra hours are paid at a rate of $15 per hour, while the first 40 hours are still paid at $10 per hour.

Exempt vs. Nonexempt

Not all employees are eligible for overtime pay. If your position is classified as exempt, that means that you are not eligible to earn overtime, even when you work more than 40 hours in a week. If your position is classified as nonexempt, your boss is required to pay you overtime when you exceed 40 hours in a week. If you are unsure which classification you fall into, ask your boss or contact your human resources representative.

Reading Your Pay Stub

You can find all of this information, including your gross base pay, hourly rate and overtime payments, on your pay stub. The pay stub you receive each payday lists your gross base pay, along with any overtime you may have received. The pay stub also gives you a breakdown of the deductions from your paycheck and the net pay amount. You can also find year-to-date earnings information for all payment categories, including gross base pay, overtime pay and net pay.