How to Calculate a Person’s Gross Annual Salary? is the topic of today’s article. Still, before we get there, it’s essential to realize that this kind of salary is one of the fundamental ideas that make up the payroll. It is crucial to comprehend what payroll is and the components that make it up for this reason. Move along!
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Basics of salary: what are they?
Let’s get to the presentations first! What exactly do we mean when we say payroll? The list of all employees entitled to receive wages and salaries is found on a company’s payroll.
The document the employee receives outlining the methodology used to determine their compensation, typically every month, is also referred to by this term.
The salary is the primary component of any payroll. This salary is made up of three different types of compensation:
- The base pay. The hourly wage is fixed for each professional category without considering the employee’s situation.
- Supplements to pay. They are financial benefits that are added to the base pay and essential to the salary. Their value and concept vary depending on the activity. Every supplement contributes to the overall Social Security program, and the appropriate deductions are made.
- Unpaid benefits. They are the incidental benefits that the employer provides to the employee and entail a form of income that permits the enjoyment of particular goods but does not directly contribute to the employee’s salary. Since 2013, many of them have been Social Security contributors and are no longer exempt.
How to calculate gross and net salaries and their differences
We will explore the idea of salary now that we are familiar with the components of payroll. The monetary reward for a job well done is called a salary, and it is typically paid out on a monthly basis. Upon completion of the work, this accrues.
It is crucial to understand how to calculate the annual gross salary because it is required for all calculations and references.
Keep in mind that this is how it should appear in the contracts signed by the parties and that it is the figure that will serve as a guide to compare job offers, among other utilities.
The differences between gross and net salaries will then be examined, along with the proper way to determine the gross annual salary.
Data on all gross salaries
As we’ve already seen, the gross salary is equal to the sum of the worker’s perceptions of all concepts. In other words, it represents the full amount that will be received, excluding any discounts or percentages of contributions.
We must always use the gross annual salary when comparing, say, two salary offers. Keep in mind that the gross annual salary can be calculated on your own by adding the extraordinary payments that the company’s collective bargaining agreement allows for to the gross monthly salary.
There are typically two extraordinary payments per year, though there may be more in some circumstances, and in some cases, they may already be prorated or included in the base salary.
Take-home pay: everything you need to know
It will be much simpler to comprehend what the net salary is once you have done more research on the gross annual salary. In order to calculate it, the following ideas must be deducted from the employee’s gross monthly salary:
- Social Security payments. This contribution includes the portion paid to the employer (typically 6.4% for fixed-term contracts and permanent contracts, or, where appropriate, the annual maximum salary cap) and the portion paid to the employee. Social Security contributions as a percentage of earnings cover a range of benefits and are taken into account (unemployment benefits, retirement contributions, etc.). Extraordinary payments do not support this kind of contribution.
- Individual income tax The personal income tax is to blame. The employer deducts a certain amount from the employee’s pay, which is then paid on the employee’s behalf. The following percentages must be considered in order to determine the amount of withholding (the major issues are highlighted):
- It will be necessary to figure out the withholding for general earned income using Treasury tables, taking into account the worker’s personal and family circumstances as well as their level of income.
- In 2017, a percentage of 35% is applied to the total amount of compensation for income from work received by administrators or members of boards of directors. The percentage changes to 19% in 2017 if the directors and administrators of the entities have a net turnover of fewer than 100,000 euros in the most recent tax period that ended.
- The withholding rate for 2016 will be 15% for income from work derived from preparing literary, artistic, or scientific works, conferences, colloquia, seminars, and similar events, provided that the right to their exploitation is transferred.
- The fixed rate of 15% will be applied to any unpaid work-related income that is imputed to prior years.
- The minimum rate will be 2% for relationships or contracts lasting less than a year and for temporary contracts and internship contracts.
Therefore, the net salary is equal to the gross salary minus the IRPF minus the Social Security contribution, which translates into the following formula: Net salary = gross salary – IRPF – Social Security.
Become an expert in payroll!
Any employee must understand how to read their payroll and understand their gross annual salary, how it is calculated, and what deductions are made. With training like the one you’ll receive in the Superior Course of Labor Contracting and Payroll, you’ll be able to explore all these issues and devote yourself to it professionally!
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