Transcript Math 109 – Spring, 2011 Chapter 5: Payroll 5.1: Gross Earnings (Wages/Salaries)   For any non-volunteer work, a person is paid for what they.

Math 109 – Spring, 2011
Chapter 5: Payroll
5.1: Gross Earnings (Wages/Salaries)


For any non-volunteer work, a person is paid for
what they do
Payment options could be:

Hourly (Wages)

Salary ($/Period)

Commision (Sect. 5.2)

Piecework (Sect. 5.3)
5.1: Gross Earnings (Wages/Salaries)

Objectives for Section 5.1

Use hourly rate to find gross earnings

Find overtime earnings using





> 40 hrs of work in a week
The Premium Method
> 8 hrs of work in a single day
Understand double time, shift differential, split-shift
Find gross earnings when overtime is paid to
salaried employees
5.1: Gross Earnings (Wages/Salaries)
--Objective 1-

First, the difference between gross and net
earnings:

Gross Earnings = # of hrs worked x Rate per hour

Net Earnings = Gross – Deductions
A simple example:

If Gloria makes $11.30 an hour, and she works 10
hours, then her Gross Earnings would be
GE = H x R
= 10 x $11.30
= $113.00
5.1: Gross Earnings (Wages/Salaries)
--Objective 1-
Now, suppose we have the following time sheet:
Hours Worked
Total
Hours
Employee
Smith, J.
S
M
T
W
TH
F
S
0
5
8
8
4
5
4
Rate
$9.50
Brown, M.
7
0
0
8
8
8
4
$10.25

Gross
Earnings
Find the gross earnings for each employee.
5.1: Gross Earnings (Wages/Salaries)
--Objective 2-



Sometimes, an employee will work more than
the standard 40 hours per week
In this case, we call all hours greater than 40
overtime
While not all are required, most companies pay
time-and-a-half for hours over 40
Thus, Gross Earnings are found by (if H > 40)
GE = 40xR + (H – 40)x1.5xR
5.1: Gross Earnings (Wages/Salaries)
--Objective 2-
Let's see this in an example by modifying our
previous example:
Hours Worked
Total
Hours
Employee
Smith, J.
S
M
T
W
TH
F
S
0
5
8
8
8
5.5
8
Rate
$9.50
Brown, M.
7
0
9.75
8
8
8
4
$10.25

Gross
Earnings
Find the Gross Earnings for each employee
5.1: Gross Earnings (Wages/Salaries)
--Objective 3-
Another way of finding overtime gross earnings
is by using the Premium Method:
GE = HxR + (H – 40)x.5xR

This method produces the same result (try it on
the previous example) as Objective 2, but
shows the extra cost of overtime pay more
easily
5.1: Gross Earnings (Wages/Salaries)
--Objective 4-


Sometimes an employee is paid overtime pay if
they work more than 8 hours in a day
The calculation is done the same way, but the
overtime hours are found day-by-day
Example:
Hours Worked
Total
Hours
S
M
T
W
TH
F
S
Smith, J.
0
4
8
8
12
0
8
Rate
$9.50
Brown, M.
7
0
9.75 10
0
8
4
$10.25
Employee

Gross
Earnings
Find their gross pay using the daily overtime
method
5.1: Gross Earnings (Wages/Salaries)
--Objective 5-Other types of Premium Pay




Double Time: Hours worked at twice the normal
rate of pay (holidays, weekends, etc.)
Shift Differential: An increase on the normal
hourly rate for working undesirable shifts (3rd,
swing, etc.)
Split Shift: Increase in pay for working staggered
shifts that accomodate for busy times (splitting an
8 hour day into 2, not connected, 4 hour shifts)
Comp Time: Instead of extra money for overtime,
time off is given
5.1: Gross Earnings (Wages/Salaries)
--Objective 6-
If an employee is salaried (paid for
performance/tasks instead of hours worked),
overtime is paid in the following way:
GE = Weekly Salary + (1.5 x Avg. Hrs x Hourly Rate)

Example: If Glenn earns $780 per week as an event
coordinator, and usually works 38 hours a week, find his
gross earnings for working a 50 hour week.
5.1: Gross Earnings (Wages/Salaries)
--Final Remarks-


One important thing to remember is that
overtime is often a sign of inefficient
management
Objective 6 in Section 5.1 (Finding Equivalent
Earnings) was skipped in this lecture
Suggested homework exercises:

1 – 30 (p. 168, 169); 50 – 55 (p. 170, 171)
5.2: Gross Earnings (Commission)



We will only cover objectives 1 through 3 from
this section
Some workers like salespeople are paid with
commission instead of an hourly wage
Loosely defined, commission is a percentage of
sales/revenue
5.2: Gross Earnings (Commission)

Objectives for Section 5.2

Find gross earnings using commision rates

Determine commission using variable rates

Use salary and commission to determine gross pay
5.2: Gross Earnings (Commission)
--Objective 1-

Recall that commission was defined as a
percentage of sales/revenue
Thus, the formula for finding it is the PBR
Method:
P = B x R (Pay = Sales x Rate)

This formula will show up repeatedly in areas
like payroll, taxes, and business analysis with
different meanings for the variables
5.2: Gross Earnings (Commission)
--Objective 1-
Example:
Suppose Mike earns 6.3% commission on each radio
ad spot he sells. If Mike sells $32,000 in ad space
one month, find his gross pay for the month. How
would his pay change if a client who purchased
$4,200 in space backed out before his ad ran?

Note: employees who are paid straight
commission never earn overtime, double time,
etc. pay
5.2: Gross Earnings (Commission)
--Objective 2-


Some companies pay their commissioned employees
better rates as they sell more
To find such an employee's GE we simply have to take it
bracket by bracket
Let's see this with an example:
Suppose Kristy sells paper for Dunder Mifflin and is paid
commission based upon Table 1. Find her gross pay if
she sells $38,549 in supplies in one month.
SALES
RATE
Up to $15,000
6%
$15,001 - $30,000
8%
More than $30,000
10%
Table 1
5.2: Gross Earnings (Commission)
--Objective 3-

Obviously, not all people are comfortable with
straight commission jobs, so many employers
offer salary plus commission
In this case, gross pay is found by
GE = Salary for the Period + Commission for the Period
5.2: Gross Earnings (Commission)
--Final Remarks-


Commission jobs can be both very lucrative and
very stressful
Make sure that you properly budget and save if
you work such a job so that you are able to
survive the up and down pattern of sales
Suggested homework exercises:

1 – 18 (p.176, 177)
5.3: Gross Earnings (Piecework)


Finding gross pay with piecework is similar to the
process of finding pay with commission, except pay is
determined by production and pay per item produced
The formula:
P = B x R (Pay = Quantity Produced x Pay per item)


Many companies also dock pay for poor quality or
wasted resources. These deductions are called
dockings or chargebacks
Gross earnings which include such reductions are
found with the following formula:
P = B x R – (Spoiled Items x Penalty per Item)
5.3: Gross Earnings (Piecework)

Let's see an example that covers all of section
5.3
Suppose Chris makes electronic switches on assembly line
and has a piecework pay determined by Table 2. Find his
pay for the week if he produced 1054 switches, 850 on
regular time and the rest on overtime, and 23 were found to
be defective.
Quantity
Pay per
Item
Return
Dock per
return
Up to 400
$1.25
Up to 10
$.40
401 - 800
$1.35
11 - 20
$.60
> 800
$1.50
> 20
Table 2
$.75
5.3: Gross Earnings (Piecework)
--Final Remarks-
Suggested homework exercises:

1 – 32 (p. 183, 184)
5.4: Social Security, Medicare, and other
Taxes



Finding gross pay is the first step in payroll
After it is found, deductions such as taxes,
FICA, and withholdings are taken away
The leftover amount is called the Net Pay
5.4: Social Security, Medicare, and other
Taxes

What is FICA?

Stands for Federal Insurance Contributions Act

Now referred to as Social Security


Pays out benefits to retired persons and Medicare
recipients
In this class we will use the 2011 rates:




SSA: Employee pays 4.2% for the first
$106,800
Medicare: Employee pays 1.45% uncapped
Previously, SSA was 6.2% for employees
Approximately 7% of income earners reach the SSA
cutoff
5.4: Social Security, Medicare, and other
Taxes

Examples:
Find the SSA and Medicare deductions for the
following workers: (a) Rich had gross earnings of
$2,130.45 this pay period and has earned
$64,345.28 this year; (b) Kelly had gross earnings
of $6,876.78 this pay period and has earned
$103,495.05 this year.
5.4: Social Security, Medicare, and other
Taxes



If a person is self-employed, they still have to
contribute to FICA and Medicare
For 2011, their contribution rate is

FICA: 13.3% of earnings up to $106,800

Medicare: 2.9% of earnings uncapped
Another payroll tax is State Disability Insurance
(SDI)

This tax is usually (and will be for our purposes) 1%
of earnings up to $31,800
5.4: Social Security, Medicare, and other
Taxes

Example:
Find the FICA, Medicare, and SDI deductions for
each of the following persons: (a) Jon earned
$3,456.09 this pay period from his employer and
has earned $23,109.13 this year; (b) Maria is a selfemployed private investigator and earned $7,500
from her most recent job. She has earned
$29,253.02 this year so far.

Suggested homework exercises:

1 – 32 (p. 191, 192) (Use the rates we used in
these slides)
5.5: Income Tax Withholding



In this section we will discuss the amount
withheld from gross income, section 6.3 will
discuss filing personal income tax returns
Personal income tax is the single largest source
of revenue for the US government
For this section, and problems related to it, we
will utilize the tables and figures within Section
5.5 unless otherwise stated
5.5: Income Tax Withholding
--Objective 1-


When filling out the Employee's Withholding
Allowance Certificate (W-4), fewer allowances
means more will be withheld from a check
At most, a person can claim as many
allowances as persons within the household
under their care and providence
Example: A married individual with 2 children
could claim 4 allowances, or could claim less
and have a refund at the end of the year
5.5: Income Tax Withholding
--Objective 2-


One method of determining the amount
withheld for federal taxes is the wage bracket
method
Which bracket (how much is withheld) depends
on the filing status, frequency of pay,
withholding allowances, and gross earnings
Example: Use Fig 5.9 and 5.10 to determine
the federal witholding for Susan who is married,
claiming 4 allowances, and has a gross monthly
income of $3,188.
5.5: Income Tax Withholding
--Objective 3-



The other method of determining the amount
withheld by the federal government is the
percentage method (what we will use for our
projects/homeworks)
All one needs for the percentage method is Fig
5.11 on page 198
First, determine the amount for one withholding
allowance (top of p. 198)
Then, locate your bracket based on pay
frequency, filing status, and pay after
withholdings
5.5: Income Tax Withholding
--Objective 3-



It may seem like the same procedure as the
bracket method, but it is in fact much easier
Consider the example we did previously–find
Susan's withholding using the percentage
method
There may slight differences between the
bracket and percentage method, but these
discrepancies are resolved when taxes are filed
One main benefit of this method is the ease
with which computer based payroll systems can
calculate withholding
5.5: Income Tax Withholding
--Objective 4-


State tax is determined differently from state to
state
We will use the following table
Use gross income without withholdings for state
tax
5.5: Income Tax Withholding
--Objective 5-

Now we can determine net pay (what a person
gets to keep of their gross income)
The formula for net pay is
Net Pay = Gross – FICA – Medicare – Fed. Withholding –
State Withholding – Other Deductions (Union
dues, etc.)

Example: Find the net income of Kaci who is
single, claims 2 withholdings, lives in Ohio, and
grosses $938.40 weekly from her employer
5.5: Income Tax Withholding
--Final Remarks-


Much of what we do in this class will follow a
similar pattern: we find lots of little things to in
turn find something much larger
Don't be worried about all the formulas–some
will become ingrained through usage, others
can be easily learned by doing the suggested
problems
Suggested homework exercises:

1 – 5 (p. 201), 19 – 24 (p. 202), 35 – 40 (p. 203)