Payroll Gross-up refers to calculating the employee’s gross pay from a given net pay to cover the tax liabilities. This ensures that the employee receives a specific net pay amount after accounting for government taxes and/or deductions. Gross-up is often used when an employee receives a benefit such as bonuses, relocation expenses, or severance plans. For example, a company may cover moving expenses, up to a certain limit, for new employees that stay with the company for a minimum period of time. The company may need to reimburse the employee’s moving expenses and pay expected taxes that will be owed for this payment; this is where the Gross-up process helps. Gross-up payroll helps identify what the employer needs to pay more so the employee doesn’t pay the liabilities out of pocket for a specific benefit and/or payment.

Supplemental Wage without a Paycheck

1. Under Deductions & Benefits, create a benefit with a Benefit Code of Supplemental Wages.

2. Add the Supplemental Wage benefit to an employee. Be sure to fill out the Federal, State, and Local Tax tabs with proper settings.

3. Select the employee in Live or ATF Payroll.

4. Verify that there is no gross pay for the employee, other than in the Supplemental Wage benefit.

   • You may need to zero out values in the Rates and Hours section or calculated amounts in the Earnings section.

5. To make the system calculate 22% for Federal Withholding, enter a value for the Supplemental Wage benefit.

6. Check the box Enter Net Pay for Gross up. This will enable the Net Pay field.

7. Enter the desired Net Pay.

8. The system will then calculate gross pay and any withholdings based on the employee setup. The calculated gross pay is displayed on the Gross Pay field.

9. You can then take that calculated gross pay amount and enter it into the Supplemental Wage benefit amount field so the check will show the benefit and the gross amount to be the gross-up amount.

Supplemental Wage with a Paycheck

1. Under Deductions & Benefits, create a benefit with a Benefit Code of Supplemental Wages.

2. Add the Supplemental Wage benefit to an employee. Be sure to fill out the Federal, State, and Local Tax tabs with proper settings.

3. Select the employee in Live or ATF Payroll.

4. Enter appropriate data in the Rates & Hours and Earning section for the pay period. You can leave the Supplemental Wage benefit as zero.

5. Check the box Enter Net Pay for Gross up. This will enable the Net Pay field. Note the current Gross Pay.

6. Enter the desired net pay in the Net Pay field.

7. The system will then calculate gross pay and any withholdings based on the employee setup. The calculated gross pay is displayed on the Gross Pay field.

8. You can then take that calculated gross-up pay amount, calculate the difference, and alter the Supplemental Wage benefit amount field accordingly.

Related Links

Drake Accounting - Entering Payroll Benefits

Drake Accounting - Employee Payroll Setup