Gross payroll includes all compensation paid to employees before deductions. The key to calculating gross payroll correctly is to determine what should be included and excluded.


Gross payroll applies to payments made daily, weekly, biweekly, semi-monthly, monthly, quarterly or yearly, to all employees including those paid on an hourly, piece work, salary, commission or job-by-job basis.


To arrive at gross payroll for the pay period, add all cash payments and non-cash wages made to the each employee during that time frame. Do not include any deductions taken from employees’ paychecks. Deductions take two forms: mandatory and voluntary. Mandatory deductions include federal income tax, Social Security tax, Medicare tax, state and local income taxes, wage garnishment, and any other deduction that a legal entity requires. Voluntary deductions vary by employer, as you offer them only if you want to. These include medical, dental, vision, life, accident and disability insurance; retirement plans; expense accounts for health and dependent care and parking and transit fees; and deductions for paycheck advances or other company benefits. Whereas gross payroll is compensation before deductions, net payroll is compensation after deductions.

Applicable Definition

Gross payroll stems from gross wages, so to figure the former, you must determine the latter. An employee’s gross pay is simply her compensation before deductions, but things aren’t always so straightforward for an employer. Your responsibilities go beyond just paying employees, as you’re also required to pay taxes and insurance fees. Each administering agency has its own definition of compensation or gross wages. For example, the National Council on Compensation Insurance (NCCI) establishes rules that define compensation for the purpose of calculating workers’ compensation premiums. For state unemployment tax purposes, each state has its own provisions for what constitutes gross wages. And for federal tax purposes, the Internal Revenue Service has its own definition of gross wages.

Applicable Inclusions

Compensation under NCCI rules includes, but is not limited to, salaries and wages; back pay; bonuses and stock bonus plans; additional pay for overtime work; commissions and draws against commissions; holiday, vacation and sick pay; payments made on any basis besides time worked such as incentive plans, piecework or profit sharing; and the value of goods, store certificates and other substitutes for money. For state unemployment tax purposes, Arizona law says gross wages include, but are not limited to, wages, salaries, bonuses, commissions, overtime pay and tips and incentive awards. If necessary, consult the respective administering agency for clarification.