Gross salary is the total amount of money an employee earns in a year from the company he is working for. It is the summation of each rupee without calculating formal deductions such as provident fund, income tax, and medical insurance premiums. It includes incentives, bonuses, travel, and other allowances, giving you the entire picture of your salary status as an employee. It is different from the net salary that you take home after deductions.

It is important to understand where your money goes between gross and net salary. To have complete knowledge of your finances, it is important to know how to calculate gross salary. It is no rocket science and you can simply put together some numbers to find out how much the company pays you and how much is deducted before you receive your in-hand salary. Therefore, let us not waste any more time and drive straight into learning the basics of ‘how to calculate gross salary’.

Step 1: Understanding the Components of Gross Salary

The answer to how to calculate gross salary lies in understanding the components of it. Once those are clear, all you need to do is put them together and you have your number.

Direct Benefits

• Basic Salary

The basic salary refers to the amount that the company pays to its employees, excluding allowances and benefits. It is the basic amount which is not subjected to changes or reduction in normal circumstances.

• Perquisites

Perquisites are benefits given to an employee besides the basic salary and certain allowances. These can either be monetary or non-monetary benefits.

• Salary Arrears

An employee becomes eligible for arrears with salary increments. It is an amount paid as a result of a hike in their salary.

• House Rent Allowance

This covers the employee’s cost of accommodation.

• Leave Travel Allowance (LTA)

Leave travel allowance is the amount of money given to employees for traveling. It could either be once or twice a year, depending upon the company’s policies and the employee’s post.

• Vehicle allowance

It is the sum allotted to employees for commuting purposes.

• Incentives and Bonus

Incentives are generally given out based on the performance of an individual. It varies greatly and depends completely on the policies of the company and the output of an employee. Bonuses, on the other hand, can be given on special occasions or at a certain time of the year.

Indirect Benefits

Indirect benefits include food coupons, a company leased accommodation, income tax savings, interest-free loans, health premiums, and Life Insurance paid by the employer.

Savings Contribution

Every company contributes to its employees’ savings. Provident funds and superannuation benefits come under such contributions. If you wish to know how to calculate gross salary, considering these contributions is imperative.

Step 2: Sorting Your Benefits

Now combine your basic salary with the allowances and perquisites you receive from your employers. Every company gives out different kinds of benefits to its employees. Tick all the benefits you get from yours and leave out the ones you don’t.

For instance, if you receive LTA, bonus, health insurance, and vehicle allowance but no house rent or food coupons, leave out the latter and consider only the ones applicable.

Step 3: Calculate the Amount

Once you have sorted your list, write down the respective amounts and add the sum using a calculator. Make sure that you have entered all the amounts correctly for an error-free summation. This calculation excludes all your deductions such as taxes, provident funds, insurances, etc. What you have got is the gross amount your company pays you per annum.

While making a calculation of your gross salary, make sure you enter the details correctly.

In case you only have access to the net salary and have a breakdown of your deductions, you can still find your gross salary. Simply add all the deductions to the net amount and your total is the amount you are looking for. Thus, how to calculate gross salary has not one but two answers. It can be done either way but the former process gives you a clearer idea about your payments.

Why Should You Know How To Calculate Gross Salary?

There are several reasons why you should know how to calculate gross salary:

• It gives you a crystal clear idea about your earnings and savings.
• It helps you deal with your taxes better and save better. Once you have an idea about your gross salary, you can proceed to know more to save taxes and also think about investments.
• It helps you handle your finances better. You can deal with the money better as you are aware of the basic salary and other allowances.
• You can save an extra bit or invest the same money in some lucrative schemes.

Thus, calculating your gross salary is not at all difficult if you have access to all the details. Make sure that you do not assume any amount but only go by what is stated in the official document. A wise man always has a bird’s eye view of his finances and calculating your gross salary is the first step.