10.1 gross pay

Business Math, Eighth EditionCleaves/Hobbs

© 2009 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10.1 Gross Pay

Find the gross pay per paycheck based on salary.

Find the gross pay per weekly paycheck based on hourly wage.

Find the gross pay per paycheck based on piecework wage.

Find the gross pay per paycheck based on commission.



10.1.3 Find the Gross Pay Per Paycheck Based on Salary

Pay periods

Weekly: once a week or 52 times a year.

Biweekly: every two weeks or 26 times a year.

Semimonthly: twice a month or 24 times a year.

Monthly: once a month or 12 times a year.



Find the gross earnings per pay period

Nicole earns $36,000 a year. If she is paid on a weekly basis, what is her gross pay per week?

Divide $36,000 by 52 pay periods.

$692.31

What if she is paid on a semimonthly basis?

$1,500.00



Try these examplesFind the gross earnings for:

Carolyn, who earns $15,000 a year and is paid weekly.

$288.46

Martha, who earns $48,000 a year and is paid biweekly.

$1,846.15

Bill, who earns $35,000 a year and is paid semimonthly.

$1,458.33



Key Terms

Gross earnings (gross pay): the amount earned before deductions.

Net earnings (net pay/take-home pay): the amount of your paycheck.



Hourly rate or hourly wage: the amount of pay per hour worked based on a standard 40 hour work week.

Overtime rate: rate of pay for hours worked that exceed 40 hours per week.

Time and a half: standard overtime rate that is 1½ (or 1.5) times an hourly rate.

Key Terms



Regular pay: earnings based on an hourly rate of pay.

Overtime pay: earnings based on overtime rate of pay.

Key Terms



10.1.2 Find the Gross Pay Per Week Based on Hourly Wages

1. Find the regular pay by multiplying the number of hours (40 or less) by the hourly wage.

2. Find the overtime pay by multiplying the hourly rate by the overtime rate (usually 1.5) and then multiply that rate by the number of hours that exceed 40.

3. Add the figures from steps 1 and 2.



Here’s an example

Theresa worked 45 hours last week. If her hourly rate is $10.50 per hour, find her total gross earnings.

Multiply 40 x $10.50 = $420.00

To calculate the overtime amount, multiply her hourly rate by 1.5: $10.50 x 1.5 = $15.75

Multiply the overtime rate ($15.75) x the number of overtime hours (5): $15.75 x 5 = $78.75

Add the regular and overtime pay: $498.75



Try these examples

The regular hourly rate in the production department for these employees is $6.50, and overtime is paid at 1.5.

Find the weekly earnings for these employees: Marcus worked 48 hours.

$338

Allison worked 44 hours. $299



10.1.3 Find the Gross Pay Per Paycheck Based on Piecework

Piecework rate: amount of pay for each acceptable item produced.

Straight piecework rate: piecework rate where the pay per piece is the same no matter how many items are produced.

Differential piece rate (escalating piece rate): piecework rate that increases as more items are produced.



Here’s an example Jorge assembles microchip boards. He is paid

on a differential piecework basis.

Rates are as follows:

From 1-100 $1.32 per board

From 101-300 $1.42 per board

301 and over $1.58 per board

If he assembles 317 boards how much will he earn?



Jorge’s earnings

100 x $1.32 = $132.00

101 to 300 = 200 x $1.42= $284.00

17 x $1.58 = $ 26.86

Total earnings: $442.86



Try this example

Jillian gets paid a differential piece rate for each shirt she sews. Consult the chart below and calculate her weekly earnings if she sewed 352 shirts last week.

From 1-100: $0.47 each From 101-300: $0.60 each 301 and above: $0.70 each What were her earnings?

$203.40



10.1.4 Find the Gross Pay Per Paycheck Based on Commission

Commission: earnings based on sales.

Straight commission: entire pay based on sales.

Salary plus commission: a set amount of pay plus an additional amount based on sales.

Commission rate: percent of sales that are eligible for a commission.

Quota: a minimum amount of sales that is required before a commission is applicable.



Here’s an example

Marisa is a restaurant supplies salesperson and receives 6% of her total sales as commission. Her sales totaled $12,000 during a given week. Find her gross earnings.

Use the formula: P = R x B to find her earnings.

P = 0.06 x $12,000 = $720

Marisa’s earnings equal $720



Try this example Melanie Brooks works for a cosmetics company

and earns $200 a week in salary plus 30% commission on all sales over $500. If she had sales of $1,250 last week, how much were her total earnings?

Her salary would be $200 plus any applicable commission.

The commission would be calculated at 30% on $750 in sales or $225. Add this amount to her base salary and the total is $425.



10.2 Payroll Deductions

Find federal tax withholding per paycheck using IRS tax tables.

Find federal tax withholding per paycheck using the IRS percentage method.

Find Social Security and Medicare tax per paycheck.

Find net earnings per paycheck.



Income tax: local, state of federal tax paid on one’s income.

Federal tax withholding: the required amount to be withheld from a person’s pay to be paid to the federal government.

Tax-filing status: status based on whether the employee is married, single, or head of household; determines the tax rate.

W-4 form: required form to be held by the employer for determining the amount of federal tax to be withheld.

Key Terms



10.2.1 Find Federal Tax Withholding per Paycheck Using IRS Tax Tables

To calculate federal withholding tax using the IRS tax tables, an employer must know:

The employee’s filing status (single, married or head of household)

The number of withholding allowances the employee claims

The type of pay period

The employee’s adjusted gross income



Adjusted gross income

Allowable adjustments to the gross income, such as qualifying IRAs, tax-sheltered annuities, 401Ks, or employee-sponsored childcare or medical plans.

Tax-free or tax-deferred benefits



Find the withholding taxUsing the tax tables in your text, find the amount of tax to be withheld for the following employees:

LeShonda, single, paid semimonthly, claiming one allowance, and earning $1,700 per pay period.

$220

Ricardo, married, paid weekly, claiming 4 allowances and earning $585 per pay period.

$17



10.2.2 Find Federal Tax Withholding per Paycheck Using the IRS Percentage Method

Instead of using tax tables, many companies calculate federal tax withholding using tax rates.

In order to use tax rates, the employer must deduct from the employee’s adjusted gross income a tax-exempt amount based on the number of withholding allowances the employee claims.

The resulting amount is called the percentage method income.



How to find the withholding tax using the percentage method

Find the exempt-per-allowance amount from the withholding allowance table, identifying the amount exempt for one withholding allowance according to the type of pay period.

Multiply the number of withholding allowances claimed by the amount found in the previous step.

Subtract the exempt amount from the employee’s adjusted gross income for the pay period.



Calculate the amount

Dollie Calloway’s biweekly gross earnings are $3,150. She is single, has no adjustments to income and claims two withholding allowances on her W-4 form.

Find the payroll period using figure 10-4 in your text and multiply the withholding allowance amount by two.

Biweekly: $130.77 x 2 = $261.54



Continue with the following steps

Subtract the exempt amount ($261.54) from the adjusted gross income ($3,150.00) and the result is $2,888.46.

Consult the tax tables shown in Figure 10-5 in your text.

Table 2a is the appropriate table for Dollie’s earnings: single and paid on a biweekly basis.



Continue Identify the appropriate line where her income

falls: “over $1,289 but less than $2,964”

The tax is $163.70 plus 25% in excess of $1,289.

$ 2,888.46 (taxable income) - $1,289 = $1599.46 x 25% = $399.87

Add $399.87 + 163.70 = $563.57

The amount of tax to be paid is $563.57.



10.2.3 Find Social Security and Medicare Tax per Paycheck

Find the amount of the earnings subject to be taxed; adjusted gross income less than or equal to $97,500 annually.

Social Security taxes are currently capped at $97,500. (This threshold can change.)

Multiply the taxable amount by 6.2% or 0.062 to find the amount in Social Security taxes.



Find the Medicare tax amount

The Medicare tax amount is calculated at 1.45% (or 0.0145) of the adjusted gross income.

Unlike Social Security, there is no cap on income level.

Example: Joe’s gross pay is $1,654. How much does he owe in Social Security and Medicare taxes?

SS = $102.55 and Medicare = $23.98



Employers pay an equal amount

Employers also pay 6.2% for Social Security and 1.45% for Medicare of each employee’s gross pay.

A self-employed person must pay the equivalent of both amounts: 12.4% in Social Security and 2.9% in Medicare.



10.2.4 Find the Net Earnings per Paycheck

Find the gross pay for the pay period.

Find the adjustments to income deductions, such as retirement or insurance.

Find the Social Security and Medicare tax based on the adjusted gross income.

(continue on next slide)



Find the net earnings Find the Federal withholding tax using one of

the two methods. (tables or percentage)

Find other withholding taxes, such as state tax.

Find other deductions such as insurance or union dues.

Find the sum of all the deductions and subtract that amount from the gross pay.

The resulting amount is the take-home pay.



Try this example Beth’s gross weekly earnings are $588. Four

percent of her gross earnings is deducted for her nonexempt retirement fund and $27.48 is deducted for insurance.

Find her net earnings if Beth is married and claims three withholding allowances.

See next slide for individual calculations.



Beth’s take-home pay Retirement fund = $588 x .04 = $23.52

Withholding tax from Figure 10-3 = $24

Social Security = $588 x 0.062 = $36.46

Medicare = $588 x 0.0145 = $8.53

Insurance = $27.48

Total deductions = $119.99

Net earnings = $588 - $119.99 = $468.01



10.3 The Employer’s Payroll Taxes

Find an employer’s total deposit for withholding tax, Social Security tax and Medicare tax per pay period.

Find an employer’s SUTA and FUTA tax due for a quarter.



10.3.1 Find the Employer’s Total Deposit for Withholding Tax,

Social Security Tax and Medicare Tax

Find the total of withholding tax for all employees for the pay period.

Find the Social Security tax for all employees for the period and multiply by two to include the employer’s portion.

Find the Medicare tax for all employees for the period and multiply by two to include the employer’s portion.

Add the Social Security, Medicare and withholding tax amounts for total amount.



Find the employer’s total deposit

Employee Gross

Earnings

Withholding Social

Security

Medicare Net

Earnings

Plumlee $1,050 $57.73 $65.10 $15.23 $911.94

Powell 2,085 168.05 129.27 30.23 1,757.45

Randle 1,995 174.80 123.69 28.93 1,667.58

Robinson 2,089 350.45 129.52 30.29 1,578.74



Find the employer’s deposit

Employee’s Contribution

Employer’s

Contribution Total

Social

Security $447.58 $447.58 $895.16

Medicare $104.68 $104.68 $209.36

Withholding $751.03 0 $751.03

Total Employer Deposit $1,855.55



10.3.2 Find the Employer’s SUTA Tax and FUTA Tax for a Quarter

FUTA (Federal State Unemployment Tax Act) and SUTA (State Unemployment tax) are paid entirely by the employer and do not affect the employee’s paycheck.

FUTA is currently 6.2% of the first $7,000 earned by an employee in a year minus any amount the employer has paid in SUTA (up to 5.4%).

FUTA and SUTA are paid on a quarterly basis.



FUTA and SUTA

The amount a company pays in SUTA will depend on a company’s unemployment history.

If an employer pays 5.4% in SUTA, then the company will pay 0.8% in FUTA.

If the amount owed in FUTA in a given quarter is less than $100, then no payment is made that quarter and the amount is added to the following quarter.



Calculate the SUTA and FUTA

George earns $40,000 a year. If the SUTA rate is 5.4%, calculate the amount of SUTA that George’s employer will pay on his behalf for the first quarter. Then, calculate the amount of FUTA. [Remember, it is calculated only on the first $7,000 in income.]

SUTA = $378 FUTA = $ 56

10.1 gross pay

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