You may find your job fulfilling, but at the end of the day, you work to earn a living. That income provides a roof over your head and food on your table.
Discover More: Salary Needed To Achieve the American Dream in the 50 Largest Cities
Try This: 4 Affordable Car Brands You Won't Regret Buying in 2025
Here’s a look at how to calculate your paycheck, so you’ll understand how your hourly rate or annual salary translates into the sum you see in your bank account each pay period.
The process of calculating your paycheck depends on whether you’re paid hourly or receive an annual salary. Here’s an example for each scenario.
Find Out: 3 Signs You’ve ‘Made It’ Financially, According to Financial Influencer Genesis Hinckley
-
Check your pay rate. Say you make $20 per hour.
-
Multiply your pay rate by the number of hours you worked in the pay period. In this example, you worked 70 hours over two weeks. $20 X 70 = $1,400 — this is your gross pay, meaning your earnings before any deductions.
-
Factor in overtime (if applicable). Since you only worked 35 hours per week, overtime doesn’t apply for this pay period — overtime typically doesn’t kick in until you work more than 40 hours in a week.
-
If you did work overtime, you would multiply your regular pay rate by 40 hours, then multiply the number of overtime hours you worked by your overtime rate — usually 1.5 times your regular pay rate. Then, add those two numbers together for your total gross pay.
-
Subtract any pre-tax deductions, like health insurance or retirement plan contributions. Say your insurance costs $100 per paycheck, and you contribute $50 each pay period to your 401(k). $1,400 – $150 = $1,250.
-
Subtract taxes withheld to determine your net or take-home pay. In this example, you paid $100 in taxes. $1,250 – $100 = $1,150 deposited into your bank account.
Pro Tip: “The employee can look at their time tracking records to project their pay based on the hours worked,” said Lauren Letsch, chief of staff at Sure Oak.
-
Check your annual salary. Say it’s $75,000.
-
Divide this amount by the number of pay periods to determine your gross pay per check. In this example, you get paid bi-weekly, so there are 26 pay periods. $75,000 / 26 = $2,885
-
Subtract any pre-tax deductions, like health insurance or retirement plan contributions. Say your insurance costs $400 per paycheck, and you contribute $200 each pay period to your 401(k). $2,885 – $600 = $2,285.
-
Subtract taxes withheld to determine your net or take-home pay. In this example, you paid $300 in taxes. $2,285 – $300 = $2,585 deposited into your bank account.
Important note: “Salaried employees may be compensated for an entire day, even if they only work part of the day,” said Susan Snipes, head of people at Remote People.
Calculating your paycheck can be complicated — regardless of how you get paid. Fortunately, there are many accurate and free calculators available that can help. For instance, payroll industry leader Automatic Data Processing, Inc. (ADP) offers tools for hourly workers and salaried workers.
Determining your gross pay is fairly straightforward. However, the process may get a little muddy once you start subtracting deductions and taxes from that sum.
“Employees can forget to take into account various tax or benefit deductions. Once they have received a few paychecks, they can begin to factor those deductions into their planning efforts,” said Letsch.
Snipes added, “Employees need to make sure that their tax preferences are correctly indicated. This is the information that they complete on Form W-4. If they provide incorrect information, such as the wrong number of jobs or the wrong amount for dependents, then their paycheck will not be calculated correctly.”
Your pay stub documents your earnings.
“Most pay stubs will show one amount for the current pay period and another amount that is the year-to-date [total]. [You’ll] see the per-pay-period amount and the year-to-date amount for each earning type, including paid time off,” Snipes said. “Employees should make sure that they are looking at the correct totals to avoid panic or confusion.”
It’s natural to want to keep as much of your hard-earned money as possible. One way to maximize your take-home pay is to “take advantage of pre-tax benefits offered by [your] employer to reduce the amount of [your] income that is subject to taxes,” said Snipes.
Hayden Cohen, co-founder and CEO of Hire With Near, added, “If your goal is just to maximize the amount of money you’re getting from each paycheck, a simple way to do this is to reduce your automatic withholdings for income taxes. You’ll still have to pay this money come tax time, but it can give you more financial flexibility.”
Chances are good that your paycheck will be wrong at some point in your career.
Snipes said, “If an employee has been underpaid or overpaid, they should report it to their employer right away. Timely reporting of the issue will prevent unnecessary delays in correcting [it].”
There are many reasons why you may want to calculate your paycheck.
“An employee would want to calculate their paycheck to plan for upcoming bills, time off or savings,” said Letsch.
For instance, if you want to take a vacation in three months, you might want to see how much of your pay you can allocate toward saving for the trip.
Cohen said, “Employees naturally want to make sure that they’re being paid what they’re worth, and calculating their own paychecks is a good way for them to check on this.”
If you find that you’re underpaid, you can ask for a raise or promotion or seek a higher-paying position.
Human resources and payroll professionals can make mistakes, so it’s wise to double-check their math.
“Many employees have trust issues because they’ve been burned before by an inaccurate payroll. Employees also value transparency, and they want to understand how their pay is calculated,” said Snipes.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: How To Calculate Your Paycheck for Different Payment Structures: Hourly vs Salary
