spending paycheck

Why is My Check So Small? – Learn About Gross, Net, and Overtime Pay

If you’ve recently started working, then you will likely have questions about your paycheck and how it is calculated. When you receive paycheck stubs from your employer, you will note both gross and net pay, with deductions and overtime having an impact on the final amount that you get paid.


Your paycheck stub is simple to understand when you have the right information. Here’s an explanation of both gross pay and net pay, along with how overtime and deductions can change your final take home amount.

Gross Pay – Your Income Before Deductions 

Gross pay is simply the money that you earn prior to any deductions. It includes your regular income as well as any overtime that you have worked within the pay period.

Gross pay calculation

Because gross pay doesn’t include any deductions, it will always be higher than the amount that you actually receive on your paycheck. Even so, it’s important to pay close attention to this number to ensure that deductions are being properly calculated.

The formula for determining your gross pay is simple. It’s the sum of your regular income (either salary or wages) and any overtime that has been worked. E.g. if you work 40 hours a week and earn $10 an hour, then your monthly gross pay would be $1600.

Overtime Pay 

Overtime works differently for every job, and some employers are more generous with their overtime rates than others. Your company may offer overtime at your standard hourly rate (or as a calculated number proportionate to your salary). In some cases, overtime may be paid at a higher rate as a special incentive.  For example, a company may offer overtime as time and a half.  That means, if your regular hourly rate is $15 per hour, then your overtime rate would be $22.50 ($15 x 1.5).

overtime pay calculation

Net Pay – Your Take Home Pay After Deductions

Before your total pay is calculated, deductions are made. The final number with deductions is known as net pay. The easiest way to think of net pay is as your ‘take home’ amount.

The formula for calculating this is very simple: Gross pay, minus deductions, equals net pay.

net pay calculation

The difference between your gross pay and net pay is entirely dependent on the deductions that are made.

Common Deductions

Deductions are most commonly made up of the following:

  • Federal Income Tax – You can choose how much of your pay is withheld for federal income tax. If you overpay, then you will receive a refund at the end of the tax year. If you pay too little, then you could be hit with a bill. The IRS makes this helpful withholding calculator to keep things simple.
  • State Income Tax – Not applicable to every person. If you are on a low income or have other exemptions, then you may not have to pay any state income tax. Your payroll representative can help you determine what you’re required to withhold.
  • FICA (Federal Insurance Contributions Act) – Social Security contributions are withheld on every paycheck. FICA also includes Medicare Tax.
  • Health Insurance and/or Savings Plans – If you have an employer sponsored retirement savings account or health insurance, then these will appear as deductions on your pay stub.


When broken down, your net pay is no longer confusing. By understanding how pay is calculated, you will have a better understanding of your finances, and you will be better able to spot discrepancies in your pay that might need addressing.

Patrons, these points are covered in detail in this month’s video lessons. Take time to review them if needed, and as always, feel free to ask questions.

If you are not a member, go to www.JustDoItAfraid.com  to learn about our mentorship program and how to become a patron.

That’s it for now.

Dr. Linda