Gross-to-net turns hours and rates into a paycheck. It starts with gross earnings (regular, overtime, premiums), subtracts pre-tax deductions where they apply (401(k) deferrals reduce income-tax wages but not FICA wages; Section 125 benefits generally reduce both), calculates employee taxes on the right wage base for each tax, then subtracts post-tax deductions (Roth contributions, garnishments, union dues) to arrive at net pay. Employer taxes and contributions are calculated alongside, because they’re part of labor cost.
Why it matters
Each tax has its own wage base and its own exclusions, so one wrong assumption ripples through every check. In construction, the employer side (taxes, fringes, workers’ comp) becomes labor burden on the job.
Worked example
Gross $3,000; 401(k) $180; Roth $50; Section 125 $150. Income-tax wages $2,670; FICA wages $2,850; Social Security $176.70; Medicare $41.33; with $250 federal and $120 state income tax, net pay is $2,031.97 (illustrative).
Common mistakes
- Excluding 401(k) deferrals from FICA wages.
- Forgetting the employer side when costing labor.
How os.construction handles it
Payroll in the accounting preview calculates each wage base and tax per check and posts labor and burden to job cost. Verify output before filing or payment. See Payroll.