Payroll

Gross Earnings: Wages

Payroll Process
 Gross Earnings
 Salaries and Wages (Section 1)
 Piecework and Commission (Section 2)
 Deductions
 Social Security, Medicare, and other Taxes (Section 3)
 Income Tax Withholding (Section 4)
 Net Pay

Section 1 - Intro
 Gross pay: determined by time.
 Ledger (electronic or paper) is used to organize time worked.
Employee S
Petty, R.
---
M
Hours Worked
T W Th F S
---
Dean, D.
-----
Total
Hours Rate
$7.59
$8.01
Gross
Earnings

Payroll Ledger
Dean, D.
--8
Hours Worked
Employee S M T W
Petty, R.
--8 6.5
8
Th F S
Total
Hours Rate
Gross
Earnings
4 --32.5
x $7.59
$246.68
4 --x $8.01
$280.35
 Gross Earnings = Number of Hours Worked x
Rate per hour

Overtime
 Fair Labor Standards Act regular pay OT pay
 For most full-time workers…
 40 hour workweek 0 hr

40 hr
Work above and beyond 40 hours results in higher than normal pay:


1 1/2 or 1. 5 times the normal rate
“Time-and-a-half”

Example
47 hr total hours
-40 hr regular hours
7 hr overtime hours
Compute the gross pay for this employee:
Regular Pay Rate: $9.18 per hour
Hours worked this week: 47 hours
Overtime, if applicable is paid at time-and-a-half.
Regular Pay + Overtime Pay = Gross Pay
+
Regular Pay
$9.18/hr x 40 hours = $367.20
= $463.59
Overtime Pay
1 st Establish overtime rate of pay: 1.5 x $9.18/hr = $13.77/hr
2 nd compute overtime pay: $13.77/hr x 7 hr = $96.39

Payroll Ledger with overtime
 Gross Earnings = Regular Pay
+
OT Pay
Gross Earnings (Petty, R.) = 40 hr x
$9.50 + ($9.50 x
1.5 x
4.5 hrs)
Gross Earnings (Dean, D.) = 40 hr x
$8.85 + ($8.85 x
1.5 x
3 hrs)
S M T 44.5 hrs Th F S Reg OT
Petty, R.
-10 8.5
8 12 6 -40 4.5
$9.50
Dean, D.
-8 12 9 9 5 -40 3 $8.85
43 hrs
$380.00
$354.00
$64.13
$39.83
$441.13
$393.83

Practice
Payroll Ledger
 6.1 Exercises
 #2 – 4
 #7 – 9
 #12, 13


Overtime
Per Workday
(reference page 219)
CONCEPT
 Overtime is paid for all work beyond 8 hours in any given day.
 It is paid whether you reach 40 hours for the week or not.
regular pay OT pay
EXAMPLE per hour. What is her pay on Monday if the company uses the
“overtime for over 8 hrs of work per day” method?
Regular Pay: 8 hours at $12.00 per hour = $96.00
Overtime Pay:
1 st Overtime Rate = $12.00 x 1.5 = $18.00 per hour
2 nd Overtime Pay = $18.00 x 5 hrs = $90
Gross Earnings: $96.00 + $90.00 = $186.00


example
Determine this worker’s pay if their regular pay rate is
$9.90 per hour.
M

T
6 hr
W
6 hr
Th
9.5 hr
F
8
S M T W Th F S Total
Hours
Reg.
--8 6 6 8 8 ---
O.T.
--3.5
----1.5
-----
36
5
Regular Pay
$9.90 x
36 hours
$356.40
OT Pay
1 st $9.90 x
1.5 = $14.85
2 nd $14.85 x
5 hours
$74.25
Gross Earnings
$356.40 + $74.25
$430.65

Practice
OT Paid on Work > 8 hrs per day
 6.1 Exercises
 #22, 23

Gross Earnings: Salaries

Salary
Our 2 nd method of computing Gross Pay
 Fixed amount for each pay period .
 Common Pay Periods
Monthly
Semimonthly
Biweekly
Weekly
12 paychecks per year
Twice each month (24 paychecks/year)
Every two weeks (26 paychecks/year)
52 paychecks per year

Salary Equivalents
 Done in order to compare different salaried workers.
Weekly Biweekly Semimonthly Monthly Annual
$729.23
$1,458.46
$1,580 $3,160 $37,920

52 checks x
24 checks

Practice
Salary Equivalents
 6.1 Exercises
 #30 – 33
 Application Problems
 #41, 43, 45
 END of Section 1

Gross Earnings: Piecework and Commissions

Introduction
 Section 1 – Salaries and wages are “ time rates ”.
 Pay depends upon actual time on the job
 Section 2 – Methods of pay are “ incentive rates ”.
 Pay depends upon actual performance on the job.


Piecework
Commission

Piecework
 A piecework rate is the pay per item produced.
Gross Earnings = $120 x
Number of Items
$20 per bicycle assembled

EXAMPLE
Truck drivers are typically paid based on the number of miles driven.
The pay for a truck driver who logs 588 miles at a pay rate of
$0.38/mile is:
Gross Earnings = $223.44
x
Number of Items

Practice
Piecework
 6.2 Exercises
 #2 -4

Piecework overtime
 Overtime rate is 1.5 times the regular rate per piece.
Regular Pay Rate
$20 per bicycle assembled
Overtime Pay Rate
$20/bicycle x 1.5 =
$30/bicycle

Practice
Piecework Overtime
Quick Check 4
(p. 229)
An assembler is paid $0.84 per each child care seat assembled.
In a week, 400 car seats were made on regular time and
138 were made on overtime.
Compute the gross earnings for this worker.
Regular Pay
400 x
$0.84 = $336.00
Gross Earnings = $336.00 + $173.88
Gross Earnings = $509.88
Overtime piecework rate
$0.84 x
1.5 = $1.26 per seat
Overtime Pay
138 x
$1.26 = $173.88

Practice
Piecework with Overtime
 6.2 Exercises
 #16 - 18

Differential Piecework page 228
 Quotas determine the minimum amount of work to be done.
 Incentives (i.e. differential piecework) offer higher pay when the quota is exceeded.
Packaging Department Pay Scale
1 – 60 boxes $0.80 per box
61 – 80 boxes
80 or more boxes
$0.90
$1.10 per box per box
Quota
Incentives
What is the pay for an employee who fills 84 boxes?

84
24
Packaging Department
1 – 60 boxes
61 – 80 boxes
81 or more boxes
$0.80 per box
$0.90 per box
$1.10 per box
60 boxes x
$0.80 = $48.00
4 20 boxes x
$0.90 = $18.00
4
4 boxes x
$1.10 = $4.40
Pay = $70.40

Practice
Differential Piecework
Quick Check 2
(p. 228)
Scooter Frame Company pays welders as follows:
150
1 – 150 frames $2.85 each
151 – 250 $3.20 each
251 or more $3.45 each
Find the gross earnings of a worker who welds 282 frames.
150 x
$2.85 = $427.50
100 x
$3.20 = $320.00
32 x
$3.45 = $110.40
Gross Earnings = $857.90
100

Practice
Differential Piecework
 6.2 Exercises
 #6 - 8

Piecework with Guaranteed Hourly Wage
 Employee is paid either the minimum wage or the piecework earnings…whichever is higher.

Practice
Piecework with Guaranteed Hourly Wage
Quick Check 3
(p. 229)
A cabinet door finisher is paid $14.70 per hour for an 8-hr day or
$0.95 per cabinet door , whichever is higher.
Minimum Daily Pay = $14.70 x 8 hr $117.60
Find the gross earnings for a worker who output was:
Monday: 106 doors x
$0.95 = $100.70
$117.60
Tuesday: 127 doors
Wednesday: 152 doors
Thursday: 120 doors
Friday: 138 doors x
$0.95 = $120.65
x
$0.95 = $144.40
x
$0.95 = $114.00
x
$0.95
= $131.10
$117.60
Gross Earnings = $631.35

Practice
Piecework with Guaranteed Hourly Wage
 6.2 Exercises
 #12 - 14

Commission
 Commission is often used for salespeople.
 Pay is usually expressed as a percent of sales.
A real estate agent earns a 6.5% commission rate on all residential homes sold.
Earn $6.50 for every $100 sold.

Commission
Example
 Compute the commission for a real estate agent who just sold a $142,500 home. Her commission rate is
5.25%.
Your commission is based upon your sales.
Part = Base x Rate
Commission = $142,500 x 0.0525
Commission = $7,481.25

Commission
Example (including Returns)
 A sporting goods store salesperson had sales of $14,500 one month, with returns and allowances of $825. Determine her gross earnings if she is paid a 20% commission.
Commission = $13,675 x 0.20
Commission = $2,735.00

Practice
Commission
 6.2 Exercises
 #20 - 22

Commission
Variable Commission Rate
 Variable commission rate (sliding scale) is used by companies to keep their top salespeople.
Sales Rate
Up to $20,000 6%
$20,001 to $3o,000 8%
$30,001 and up 9%

Commission
Variable Commission Rate
 Quick Check 7
(p. 231)
 What is the commission earned on sales of $38,400?
Sales
Up to $20,000
Rate
6%
$20,001 to $3o,000 8%
$30,001 and up 9%

$38,400
Sales
Up to $20,000
Rate
6%
$20,001 to $3o,000 8%
$30,001 and up 9%
$18,400
$20,000 x
6%= $1,200
$8,400
$10,000 x
8% = $800
8,400
$8,400 x
9%= $756
Gross Earnings = $2,756

Practice
Commission (Variable or Sliding Scale)
 6.2 Exercises
 #24 - 26

Salary plus Commission
 Salesperson is paid a fixed sum per pay period plus a commission on all sales.
Gross Earnings = Fixed Amount/period + Commission Amount


Quick Check 8
(p. 231)
 Salesperson is paid a salary of $290 a week, plus a 4% commission on all sales over $750.
 Compute his gross earnings for a week where his total sales were $1870.
Gross Earnings = Salary + Commission
$1870 - $750 = $1,120

Practice
Salary plus Commission
 6.2 Exercises
 #28 - 30 15,000
Sales Percent Commission
$0 - $15,000 No Commission (o%)
$15,001 - $25,000 0.9%
$25,001 – up 1.1%
10,000

Problem 28.) Page 234
$36,300
$21,300
Sales Rate
Up to $15,000 0%
$15,001 to $25,000 0.9%
$25,001 and up 1.1%
$15,000 x
0%= $0.00
$11,300 $10,000 x
0.9% = $90.00
11,300
$11,300 x
1.1%= $124.30
Commission = $214.30
Gross Earnings = $452 + $214.30

Section 3 - Social Security, Medicare, and other Taxes

Introduction
 Deductions
 Social Security (FICA)
 Medicare
 State Disability Insurance (SDI)

Social Security
 FICA – Federal Insurance Contributions Act
 Tax rate is 6.2%
 This rate is applied on all earnings up to $110,000 *
 Both employee and employer pay into it.
 Your employer matches your contribution dollar for dollar.

Social Security


 $855 x 6.2%
 $855 x .062 = $53.01
 Your employer’s contribution:
 $53.01

Maximum Annual Contribution
 What is the most you will pay into Social Security in one year?
 Textbook
(page 236)
: Pay on the first $110,000 only.
 $110,000 x 6.2% =
 $6,820

7%
 To date, a salesperson has earned $108,350.00
 Her next paycheck is $3,795.00
 How much will be withheld for Social Security?
110,000
110,000
1,650
108,350
108,350
$1,650 x 6.2%
$1,650 x .062 = $102.30

Medicare
 Medicare tax is 1.45% of all earnings.
 The employer matches the employee’s contributions.

Self Employed


 12.4% FICA (2 x 6.2%)
 2.9% Medicare (2 x 1.45%)

State Disability Insurance
 For states that have SDI, a typical deduction is 1% of gross earnings on the first $31,800.
 On a paycheck of $568.00 the SDI deduction is:
 $568.00 x 1% = $5.68

Practice
Social Security, Medicare, and Other Taxes
 Exercises 6.3 (pages 239 – 240)
 #4 – 6, 9 – 12, 14, 15, 18
 #20, 21, 23, 26, 28

Income Tax Withholding

Personal Income Tax
 Amount of Income Tax Paid:
 Amount of Gross Earnings
 Married or Single
 Withholding Allowances (W-4)

W-4 Form
Allowances:
 Married person with three children.
 Could claim 5 allowances
 (one for the employee, spouse, and three children)
5

Gross Earnings
 Amount of tax withheld is based on the gross
earnings for the pay period.
 Methods used to determine tax:
1.) Wage Bracket
2.) Percentage Method

Wage Bracket Method
 Tables are made with weekly , biweekly , semimonthly , and daily pay periods.
 There are different sets of tables for single and married tax payers.
Pages 242 - 243

Example
Wage Bracket Method
 Quick Check 2
(page 244)
 Bob Martinez has monthly earnings of $2839.78.
 He is married and claims four withholding allowances.
Find his withholding tax using the wage bracket method.
2,800 2,840
Allowances ( 4 )
Amount withheld is $29

Practice
Wage Bracket Method
 Exercises 6.4
(page 251)
 #3, 5, 7, 11

State Income Tax
 Some states have no income tax…
 …some have a flat tax rate (% of income)…
 …and most issue tax tables to help determine tax owed.

Example
 Quick Check 6
(page 247)
 An optometrist assistant working in Michigan has gross earnings of $3,225 for the month. Determine the state withholding tax
(refer to the table on 247) .
$140.29
x 4.35%

Practice
State Income Tax
 Exercise 6.4
(page 251)
 #16 - 18

Percentage Method

Percentage Method
 Advantages:
 Don’t need the pages of tables
 Lends itself to computer processing
Payroll Period One Withholding
Allowance
Weekly
Biweekly
$70.19
$140.38
Semimonthly
Monthly
Quarterly
Semiannually
Annually
$152.08
$304.17
$912.50
$1,825.00
$3,650.00
Gross pay = $2000 biweekly
Married with 2 allowances.
$33.40 + 15% x (1719.24 - $940)
$150.29

Percentage Method
Withholding Allowance
Payroll Period
Weekly
Biweekly
Semimonthly
Monthly
Quarterly
Semiannually
Annually
Page 244
One Withholding
Allowance
$70.19
$140.38
$152.08
$304.17
$912.50
$1,825.00
$3,650.00

Page 245


Example
(page 246)
Sadie Simms is married and claims three withholding allowances. Use the percentage method to find her withholding tax in a week where her earnings were
$1263.
Payroll Period One Withholding Allowance
$70.19 x 3 = $210.57
Weekly $70.19
Biweekly
Semimonthly
$140.38
$152.08
$1263 $210.57
= $1,052.43
Monthly $304.17
Quarterly
Semiannually
$912.50
$1,052.43 is the taxable
earnings.
$1,825.00
Annually $3,650.00

Table 1 Weekly Payroll Period
(b) MARRIED person x
Taxable earnings: $1,052.43
$16.70 + $87.36
($1,052.43 - $470)
Withholding tax = $104.06


Example
(page 246)
Howard Martin has earnings of $5735 for the month.
He is married and claims four withholding allowances.
Use the percentage method to find his withholding tax.
Payroll Period One Withholding Allowance
$304.17 x
4 = $1,216.68
Weekly $70.19
Biweekly
Semimonthly
$140.38
$152.08
$5735 $1,216.68
= $4,518.32
Monthly $304.17
Quarterly
Semiannually
$912.50
$1,825.00
$4,518.32 is the taxable
earnings.
Annually $3,650.00

Table 1 Monthly Payroll Period
(b) MARRIED person -
If the amount of wages (after subtracting withholding allowances) is:
Not over $1313 . . .
The amount of income tax to withhold is:
$0
Over -
$1313
But Not Over -
$2038 of excess over -
- $1313
$2038
$6304
$6304
$9844
10%
$72.50 plus 15% x
$712.40 plus 25%
- $2038
- $6304
Taxable earnings: $4518.32
$72.50 + $372.05
($4518.32 - $2038)
Withholding tax = $444.55


Example
(page 246)
Carol Dixon has biweekly earnings of $4350, is single, and claims two withholding allowances. Use the percentage method to find her withholding tax.
Payroll Period One Withholding Allowance
Weekly
Biweekly
Semimonthly
Monthly
Quarterly
Semiannually
Annually
$70.19
$140.38
$152.08
$304.17
$912.50
$1,825.00
$3,650.00
$140.38 x
2 = $280.76
$4350 $280.76
= $4069.24
$4069.24 is the taxable
earnings.

Table 1 Biweekly Payroll Period
(b) SINGLE person -
If the amount of wages (after subtracting withholding allowances) is:
Not over $276 . . .
Over -
$276
$400
$1,392
$2,559
$6,677
But Not Over -
$400
$1,392
$2,559
$6,677
$14,423
The amount of income tax to withhold is:
$0
10%
$12.40 plus 15%
$161.20 plus 25%
$452.95 plus 28% x
$1,605.99 plus 33% of excess over -
- $276
- $400
- $1,392
- $2,559
- $6,677
Taxable earnings: $4069.24
$452.95 + $422.87
($4,069.24 - $2,559)
Withholding tax = $875.82

Gross Earnings
– FICA tax
– Medicare tax
– Federal Withholding tax
– State Withholding tax
– Other Deductions
Net Pay

Practice
 Exercise 6.4
(page 252)
 #21 – 24, 27

Money paid by companies

Amount owed to the IRS
 Example (page 253, #36)
Atlasta Ranch
FICA Tax Collected from Employees
$265.36
Medicare Tax
Collected from
Employees
$61.24
Total Federal
Withholding
Amount
Due the
IRS
$4111.68
2 x $265.36
2 x $61.24
$530.72
+ $122.48
+ $4111.68
= $4764.88

Practice
Amount owed to the IRS by a Company


Exercise 6.4
(page 253)
#37 , 40
 END of UNIT
 Practice Test
 Graded Chapter Test