What is Gross Salary? | Meaning & Definition | Akrivia HCM

What is gross salary?

Gross salary is the total amount of money an individual earns before any deductions or taxes are taken out. It includes the basic salary, dearness allowance, HRA, car allowance, medical reimbursement, conveyance allowance, and other allowances.

How to calculate gross salary?

To calculate gross salary, you must add all of an employee’s compensation components before any deductions are made. 

Here is a simple formula for calculating gross salary:

Gross salary = Basic salary + Allowances

Here is an example of how to calculate gross salary:

Employee:  John  

Basic salary: 10,000 per month 

HRA: 2,000 per month 

DA: 3,000 per month 

TA: 1,000 per month

Gross salary: 10,000 + 2,000 + 3,000 + 1,000 = 16,000

Difference between CTC and Gross Salary?

CTC stands for Cost to Company. It is the total sum a company will spend on an employee in one year. It includes salary, provident fund, medical benefits, transport allowance, etc.
Gross Salary is the amount you earn before taxes, deductions, or other forms of pay reduction.

Difference between gross and net salary

Gross refers to the amount of the salary before any deductions are made. Net refers to the amount of the salary after all deductions have been made. Gross salary is more than net salary because it doesn’t include the amount you pay towards your retirement plan and other benefits, as well as your income tax.

Difference between gross and basic salary

Gross salary is the total amount of money paid to an employee before any deductions are made.

Basic salary is the fixed amount of money that an employee is paid each month or year, excluding any allowances or bonuses.

In other words, gross salary is the total amount of money that an employee earns, while basic salary is a component of gross salary.

Components of Gross Salary

The components of gross salary include:

• Basic salary: This is the fixed salary that an employee receives each month or year.
• Allowances: Allowances are additional payments given to employees to cover specific expenses, such as housing, travel, and medical care. Some common allowances include:
  • House rent allowance (HRA)
  • Dearness allowance (DA)
  • Travel allowance (TA)
  • Medical allowance
  • Food allowance
  • Conveyance allowance

• Overtime pay: Overtime pay is paid to employees for hours worked beyond their regular work hours. Overtime pay rates are typically higher than standard pay rates.
• Commissions: Commission is a payment that is given to employees based on their performance. 
• Bonus: A bonus is a payment that is given to employees in addition to their regular salary. Bonuses are often awarded for good performance but are also given for other reasons, such as meeting specific goals or achieving a certain milestone.

Components not included in gross salary

The following components are not included in gross salary:

• Leave encashment: Leave encashment is the payment that an employee receives for unused vacation days. It is not considered part of gross salary because it is not a regular or recurring payment.
• Gratuity: Gratuity is a payment that is given to employees at the end of their employment, typically after many years of service. It is not considered part of gross salary because it is not a regular or recurring payment.
• Free meals or snacks provided by the employer: Free meals or snacks provided by the employer are not considered part of gross salary because they are not considered to be a form of compensation.
• Reimbursement of expenses: Any expenses that are incurred by the employee on behalf of the employer and are reimbursed by the employer are not included in gross salary. For example, if an employee travels on business and is reimbursed for their travel expenses, those expenses are not included in gross salary.