Gross and Net Pay

Gross Pay

• • • • • • There are a variety of ways that you may be paid for a job.

What are some of the different ways that you are familiar with?

Hourly Salary Commission Tips

Example 1

• • • Joan worked as a lifeguard this summer at the local pool in order to earn some extra cash for her senior trip next year. She was paid $7.25 per hour. If she worked approximately 40 hours in one week, find her gross pay for a two-week pay period.

Example 2

• • • • • • Carl Edwards just accepted a job as an architect. He is paid a salary of $1,560 a week. How much gross pay does Carl earn in… a year a month Would there be more than 1 way to calculate this? Would 1 way be “more” accurate?

Example 3

• • A first-year teacher at Lakeview School District makes approximately $38,000 per year. If each teacher gets a paycheck twice a month (semi-monthly), what is the gross pay for each pay period?

OT

• • • • • • • Overtime: The time a person works beyond the “normal” working hours.

Hourly employees receive OT.

Salary employees do not.

Typically OT = Time and a half or Double Time Example: $7.50 Regular Hourly Rate ($7.50)(1.5) = $11.25 ($7.50)(2) = $15.00

Example 4

• • • Larry works at Walmart and earns $8.65/hour. His employer pays time-and-a-half for overtime hours and double-time for holidays.

What is Larry’s overtime pay rate?

• If Larry worked on Labor Day what would be his pay rate?

Time is often recorded in quarters . . .

Example 5

• • • • • Carol Jones’ time is recorded in quarter hours. She worked these hours last week: Monday, 8.25 hrs - Tuesday, 8.5 hrs Wednesday, 9.25 hrs - Thursday, 8 hrs Friday, 8.75 hrs She is paid based on a 40-hour work week with time-and-a-half for overtime. If Carol’s regular-time pay rate is $10.75 per hour, what gross wages did she earn last week?

Example 5 Suggested set up :

• • • • • Carol’s total hours: Carol’s overtime hours: Total Hrs. - 40 Carol’s regular pay: Carol’s overtime pay: Carol’s gross wages:

Commission

• • • • • What is commission? Commission – a form of incentive payment. Typically what types of jobs earn commission? This is a very common method of payment for sales people. Straight Commission – only form of compensation (pay) received.

Example 6

• Melvin is the top shoe salesman at “BIG FOOT” shoe store. He is paid a straight commission of 7% on his total sales. If he sold $4,340 in shoe sales in December, what was his commission?

Commission may be based on a “quota”

• What does the word “quota” mean to you?

• • You may have heard it used this way . . . “You must meet your quota.” A Goal (aka Quota) is the target that the salesperson is expected to achieve in a certain period for a specific performance measure.

Example 7

• • • Lisa is paid a weekly salary of $300 at Roomful Express. She is paid a commission of 11% on all sales above $4,250 for the week. What are her total earnings for a week in which her furniture sales were $6,578?

Graduated Commission

• • • Commission rates that are variable and have multiple rates.

For example, if an employee sells $5,000 worth of merchandise, he may earn 2% on the 1 st $3,000 and 2.5% on the 2 nd $2,000.

Why do you think employers would use graduated commission?

Example 8

• • Employees at Clothes R Us are paid a commission of 2% on the first $10,000 of monthly sales and 4% on any sales above that amount.

If Carol’s sales for a month were $8,592, what commission did she earn?

Example 9

• • Employees at Clothes R Us are paid a commission of 2% on the first $10,000 of monthly sales and 4% on any sales above that amount.

If Trevor’s sales for a month were $13,890, what commission did he earn?

Rate of Commission

• • • • Sometimes employers pay employees a different % of commission on different items sold.

Why might the employer do this?

Why would the employee want to know what his Rate of Commission is?

Formula: (Commission in $/Product sold in $)* 100

Example 10

• • • Greg works at Game Stop and sold a Wii system and assorted games to a family for $370 and received $9.25 in commission.

What rate of commission did Greg earn on this sale? Answer should be in % format.

$9.25/$370 = .025 = 2.5%

Reminder

 • Test next Thursday – Gross and Net Pay

Net Pay

• • If you are told that your yearly salary will be $35,000, will you really pocket that much money throughout the year? Why or why not?

Gross Pay – Deductions = Net Pay

Deductions

• • • • • • • Federal tax withholdings Social security Medicare 401K Union Dues United Way Contributions Health insurance

Social Security And Medicare Tax Deductions

• • • FICA – Federal Income Contributions Act Includes Social Security and Medicare Benefits include: ▫ Federal programs for retirees, the disabled, and children of deceased workers. ▫ Medicare provides hospital insurance benefits.

Social Security And Medicare Tax Deductions

• • • • FICA tax rates and the maximum wages on which the taxes are charged are set by Congress and may change from time to time.

Currently, the overall tax rate is 5.65% Social security tax rate of 4.2% applied to a maximum wage of $106,800 Medicare tax rate of 1.45% applied to all wages

Example 11

• Note: If a person earns more than $106,800 per year from one job, the employer does not deduct social security tax after the wages exceed $106,800.

Find the total FICA tax on incomes of: a.) $36,000

Example 11

• Remember: If a person earns more than $106,800 per year from one job, the employer does not deduct social security tax after the wages exceed $106,800.

Find the total FICA tax on incomes of: b.) $117,500

Example 12

• If you earn $650 a week, what is the social security tax and Medicare tax that your company would deduct from your weekly wages?

Example 13

• What is the Social Security tax and Medicare tax deducted from an employee earning $9,250 a month? Is there something to consider?

State and Local Income Taxes

• • • • • Some states and local municipalities tax a percent of a resident’s wages.

Pennsylvania’s Income tax is 3.07% These tax dollars are used for state services such as police protection, maintenance of roads and parks.

Mt. Lebanon’s wage tax is 1.3%.

.8% - Municipality .5% - School District

Example 14

• Allison has wages of $42,300. Allison is a resident of Mt. Lebanon. If she doesn’t have any deductions, what would her state and local taxes be?

Calculating Net Pay

• • • Gross Pay – Deductions = Net Pay Think back to the other deductions we mentioned that might be taken out of gross pay.

Look back to your first page: Deductions

Example 15

• • • Angela earned gross pay of $475 last week. Her deductions are as follows: ▫ Federal withholding taxes of $48 ▫ Social security of 4.2% ▫ Medicare taxes of 1.45% ▫ State taxes of 2% ▫ Health insurance premiums of $52.70 ▫ Union dues of $11.52 Find Angela’s net pay.