3.4 How to Calculate Gross Earnings

3.4.1 Calculating Gross Earnings

To calculate gross earnings, use the formula below:

Note that not every employee will earn all the different types of earnings discussed below. Payroll professionals should calculate gross earnings based on the types of earnings that apply to the situation at hand.

3.4.1.1 Calculating Gross Regular Earnings

To calculate gross regular earnings, use the formula below:

where:

Regular Earnings refers to earnings established by an employee’s regular rate of pay

Overtime Earnings refers to hours worked that have exceeded daily or weekly thresholds and are usually computed at a rate of at least 1.5 times an employee’s regular hourly rate. Check the minimum overtime rate in your jurisdiction using the links in Chapter 2.

Holiday Earnings are paid on a statutory holiday for which no work is carried out.

Statutory Holiday Worked Earnings are applicable only if a statutory holiday is worked and an employee does not get another paid day off in lieu. It is paid in addition to holiday pay and usually at a rate higher than the employee’s regular hourly rate. Check the holiday pay rate in your jurisdiction using the links in Chapter 2.

*Commission and piece-rate pay can be regular or non-regular depending on the workplace; it is included here as regular pay. If commission or piece-rate pay is not paid on a predictable schedule, it is considered non-regular earnings.

3.4.1.1.1 Wages

Wages are earnings calculated using the amount of time a person has worked, typically at an hourly or daily rate. An hourly rate is an amount paid for all hours of work carried out during the pay period. A daily rate is a fixed amount paid for a day’s duties. An hourly rate is a common type of payment in production and manufacturing. Additionally, casual employees hired on a non-regular basis are often paid hourly or daily. Wages are calculated using the following formula:

Wage Calculation Example

Jane is an employee in Alberta and earns $15.00 per hour. She works 38 hours per week and is paid weekly. Calculate Jane’s gross pay for one week.

Wages = Hourly Rate × Pay Period Regular Hours Worked = $15.00 × 38

Wages = $570

Jane’s gross earnings for the week are $570.

3.4.1.1.2 Salary

Salary refers to an employee’s earnings per pay period, regardless of the hours worked or production accomplished. Salary is calculated using the following formula:

Salary Calculation Example

Annika receives an annual salary of $70,000. Her pay period frequency is monthly (12 paydays/year). Calculate her pay period salary.

Salary per pay period = Annual salary/Pay period frequency = $70,000/12 = $5,833

Annika’s salary per pay period is $5,833.

3.4.1.1.3 Piecework

Piecework refers to a rate of pay where a worker is paid for each unit produced regardless of the amount of time taken to produce the item. In most Canadian provinces, doing piecework does not exempt employers from paying overtime or minimum wage. Piecework is common in agriculture, call centres, and garment industries. The formula below is used to compute regular earnings for workers paid by piecework.

Piece-Rate Pay Calculation Example

David is paid $15.00 for every basket of oranges he collects in the weekly pay period. If he picks 30 baskets this week, what is his regular pay?

Piece-Rate Pay = Rate of Pay × Number of Pieces = $15 × 30 = $450

David’s regular earnings will be $450.

3.4.1.1.4 Commission

A commission refers to an employee’s fee for accomplishing certain transactions. Employees who work on commission are paid a certain percentage of the total sales they make. Most companies use commission as an incentive to encourage their representatives to perform their tasks exceptionally because no commission is given when no sales are made. Commission is calculated using the following formula:

Commission rates are typically expressed as percentages.

There are three major types of commission; straight, graduated, and salary plus commission.

Straight commission is the percentage or fraction of an employee’s total sales during a specific period. Here, the total amount of commission is arrived at by multiplying the commission rate by the sales within a given period.

Straight Commission Example

John’s commission rate in a retail store is 10%. He sold clothes worth $6,000 last week. How much commission did he receive?

Straight Commission = Sales × Commission Rate = $6,000 × 0.10 = $600

John received a commission of $600.

In a graduated commission, the commission fraction or percentage of the total sales made increases with an increase in the amount the sales agent sells in a given period. This means that a sales agent is offered higher commission rates for higher sales made in a specific time. The assumption is that the higher commission rate motivates the sales agents to work extra hard. The formula used to calculate graduated commission is as follows:

Graduated Commission Calculation Example

Ben gets a commission of 2% on monthly sales up to $200,000 and 3% on everything over $200,000. If Ben has sales of $300,000 for the month, what is his commission for the month?

Commission for the first $200,000 = $200,000 × 0.02 = $4,000

Commission for sales over $200,000 = $300,000 – $200,000 = $100,000 × 0.03 = $3,000

Total Commission = First-level Commission + Second-level Commission = $4,000 + $3,000 = $7,000

Ben’s commission for the month is $7,000.

In salary plus commission, the employee earns a basic salary plus a commission when minimum sales levels are reached. The formula used to calculate salary plus commission is as follows:

Salary Plus Commission Calculation Example

Emm earns a salary of $500 per week plus a 4% commission on all sales. If Emm had sales of $4,000 for the week, what were her gross earnings?

Commission = Sales × Commission Rate

Commission for the week = $4,000 × 0.04 = $160

Salary Plus Commission = Fixed Amount per Pay Period + Commission = $500 + $160 = $660

Emm received gross earnings of $660 for the week.

3.4.1.1.5 Overtime Pay

Overtime pay refers to the amount paid for any extra hours or weeks that an employee works over and above their regular hours. In Alberta, employees are entitled to overtime pay when they work more than 8 hours a day and 44 hours a week. Most employees are entitled to overtime pay, although some industries and professions are exempted. Again, to calculate overtime pay as per the rules of specific provinces, refer to the employment standards in your jurisdiction to determine the rates and application of overtime pay. Overtime pay is calculated using the following formula:

Overtime Pay Calculation Example

A worker in Ontario has a regular pay rate of $20 per hour. He works 40 regular hours a week. If the overtime rate is 1.5 times the regular hourly pay rate, what is his gross pay after working 10 hours of overtime?

Gross Pay = Regular Pay + Overtime Pay

Regular Pay = $20 × 40 = $800

Overtime Pay = Hourly Rate of Pay × 1.5 × Overtime Hours = $20 × 1.5 × 10 = $300

Gross Pay = Regular Pay + Overtime Pay = $800 + $300 = $1,100

The worker’s gross earnings for the week were $1,100.

3.4.1.1.6 Holiday Pay

In most Canadian jurisdictions, employees are paid on statutory holidays even if they do not work on those holidays. They are usually paid their regular rate of pay. Holiday pay is calculated using the following formula:

Holiday Pay Calculation Example

Sharnjeet works at an hourly rate of $20 per hour. For the July 1–14 pay period, she does not work on July 1 (Canada Day) and works 72 hours between July 2 and July 14 (8 hours per day for 9 days). What is Sharnjeet’s gross pay for the July 1–14 pay period?

Gross Pay = Regular Pay + Holiday Pay

Regular Pay = $20 × 72 = $1,440

Holiday Pay = $20 × 8 = $160

Gross Pay = Regular Pay + Holiday Pay = $1,440 + $160 = $1,600

Sharnjeet’s gross earnings for the week were $1,600.

3.4.1.1.7 Statutory Holiday Worked Earnings

If an employee works on a statutory holiday, the employee is usually paid at a premium rate (above their normal rate). Each jurisdiction in Canada has different rules under employment standards legislation for when and how much an employee is paid when they work on a statutory holiday. Statutory holiday pay is calculated using the following formula:

Statutory Holiday Worked Earnings Calculation Example

Ji-soo, a worker in Alberta, has a regular pay rate of $24 per hour. She works on New Year’s Day for 4 hours, and 4 hours per day on January 2–5. What are Ji-soo’s gross earnings for the week?

Gross Pay = Regular Pay + Statutory Holiday Worked Earnings

Regular Pay = $24 × 16 (4 hours/day × 4 days) = $384

Statutory Holiday Worked Earnings = Hourly Rate of Pay × 1.5 × Statutory Holiday Hours Worked = $24 × 1.5 × 4 = $144

Gross Pay = Regular Pay + Statutory Holiday Worked Earnings = $384 + $144 = $528

Ji-soo’s gross earnings for the week were $528.

3.4.1.2 Calculating Gross Non-Regular Earnings

The most common non-regular payments include bonus and incentive pay, retroactive earnings, vacation pay without time taken, and directors’ fees. Other types of non-regular earnings exist but are not discussed here. Gross non-regular earnings are calculated using the following formula:

3.4.1.2.1 Retroactive Earnings

Retroactive earnings are delayed payments that an employer owes an employee. They are regarded as employment income and thus are subject to Canadian statutory deductions. Retroactive earnings are of three types: retroactive adjustment, retroactive increase, and retroactive payment.

1. Retroactive adjustment happens when wages are processed after an increase has been granted. For instance, retroactive adjustment can happen when the paper documents authorizing a pay increase arrive late to the payroll department.
2. Retroactive increase happens when wages are increased, and the material date of increase is backdated. An example of a retroactive increase is when a particular deal is signed after the old contract expires.
3. Retroactive payment is necessary when an employee who has been wrongfully dismissed is reinstated and given back pay according to a court order, arbitration hearing, or settlement.

Retroactive earnings are calculated using the following formula:

Retroactive Earnings Calculation Example

Beth, who is paid semi-monthly, received a salary increase of $50 per pay period. The increase was effective on February 5 and will be paid at the end of March. This implies that Beth is due retroactive pay for three pay periods. Her previous semi-monthly earnings were $1,200. Calculate Beth’s new gross earnings.

New Regular Earnings = Previous Regular Earnings + Salary Increase = $1,200 + $50 = $1,250

Retroactive Earnings = Salary Increase × Number of Lapsed Pay Periods = $50 × 3 = $150

New Gross Pay = $1,250 + $150 = $1,400

Beth’s retroactive gross earnings were $1,400.

3.4.1.2.2 Bonus and Incentive Pay

A bonus or incentive pay refers to an irregular mode of payment to employees in addition to regular payments. This can be related to an employee’s work, individual performance or production, or discretionary payments like festive season bonuses. Other types of bonuses and incentive pay include those made for the recognition of excellent job performance and meeting stipulated goals and deadlines, pre-employment incentives, retention bonuses, and bonuses given for taking part in a organization’s profit-sharing plan. Bonuses are considered part of employment income regardless of the reason for the incentive, so they are subject to Canadian statutory deductions.

Bonus Pay Calculation Example

Enzo works for a construction company and earns a monthly salary of $5,200. He received a bonus of $1,400 in January. Calculate Enzo’s gross earnings for the month.

Gross Earnings = Regular Earnings + Bonus Earnings

Gross Earnings = $5,200 + $1,400 = $6,600

Enzo’s gross earnings for the month were $6,600.

3.4.1.2.3 Vacation Pay Without Time Taken

Vacation pay refers to the amount an employer pays the employee on vacation leave. It is often laid out in the employment standards of different jurisdictions. Vacation pay is usually a fraction or percentage of vacationable earnings. Employees often receive their vacation pay during their vacation time. Sometimes, an employer may pay an employee vacation pay when they have not taken an actual vacation. This is possible when an employer

• Pays out excess accrued vacation
• Pays the sum of vacation when an employee contract is terminated
• Pays the accumulated sum of vacation based on employment standards approval

In Canada, vacation pay is considered employment income and is therefore subject to statutory deductions. Vacation pay is calculated using the following formula:

Vacation Pay Calculation Example

An employee has worked for a full year and is entitled to two weeks’ vacation leave. Her vacationable earnings are $55,000. Calculate her vacation pay and gross earnings. Assume that her vacation percentage entitlement is 4%.

Vacation Pay = Vacationable Earnings × Vacation Percentage Entitlement

Vacation Pay = $55,000 × 4% = $55,000 × 0.04 = $2,200

Gross Earnings = $55,000 + $2,200 = $57,200

The employee’s vacation pay is $2,200, and her gross earnings are $57,200.

3.4.1.2.4 Directors’ Fees

Most organizations have a board of directors that oversees their operations. These individuals may not be company employees and are entitled to directors’ fees. These fees are pensionable, taxable, and not insurable for Employment Insurance (EI) premiums but are insurable for QPIP premiums in Quebec. Director’s fees are pensionable except for directors older than 70 years of age, those between 65 and 70 years of age under the Canadian Pension Plan (CPP), and those who have given notice to halt CPP contributions. On the other hand, directors’ fees are not deducted for pension when a director is receiving a CPP or QPP disability benefit.

Example of Gross Earnings Calculation with Directors’ Fees

Karol receives a monthly salary of $5,000 and a director’s fee of $3,000 for being on an Alberta company’s board of directors. Calculate his gross earnings for the month.

Gross Earnings = $5,000 + $3,000 = $8,000

Karol’s gross earnings for the month are $8,000.

3.4.1.3 Gross Earnings Formulas