30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Net Pay
PF-L2 Objectives:
Calculate Net Pay
Learning Outcome B-1
Slide 1
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Gross Pay is the amount of earning before any
deductions. Gross pay is subject to two basic types of
deductions: basic and secondary.
Basic deductions include
•Income Tax
•Canada Pension Plan (CPP)
•Employment Insurance (E.I.)
An employer must make these deductions because
they are required by the Federal and Provincial
Governments.
Theory – Basic Deductions
Slide 2
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Secondary Deductions may include
•life insurance premiums
•Canada Savings Bonds
•union dues
•pension plan deductions
•deductions to charitable organizations
•other deductions as agreed upon by the employee
and employer
Some companies even let employees purchase items like
computers or season tickets to sporting events through payroll
deduction plans. These deduction plans are optional to your
employer and may vary from job to job.
Theory – Secondary Deductions
Slide 3
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Net pay is the resulting income after all deductions
have been made from the gross pay.
Net Pay = Gross Pay - (Basic Deductions +
Secondary Deductions).
In this lesson, only basic deductions will be calculated,
as secondary deductions vary for every individual.
Theory - Methods of Pay
Slide 4
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Canadian Income Tax
Canadian Income Tax is known as a progressive tax,
that is, the tax rate increases as more money is
earned. The amount of income tax paid is the sum of
the federal tax and the provincial tax (50 percent of
the federal tax in Manitoba).
Canadian Pension Plan (CPP)
CPP has the rate set at 3.5 percent of gross pay with
a maximum contribution of $1186.50 per year (1999
figures). This amount is matched by the employer.
Theory – Income Tax & CPP
Slide 5
30S Applied Math
Mr. Knight – Killarney School
Test Yourself
Unit: Personal Finance
Lesson: Net Pay
Slide 6
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
What are "insurable earnings?" Insurable earnings are the
portion of income that is eligible to be used to calculate the
Employment Insurance premiums deducted. Earners with higher
deductions can expect to receive higher E.I. benefits if they are
unemployed.
Gratuities, tips, and most earnings are insurable.
In some cases, earnings are not insurable. The following are
examples that are not insurable.
•Casual employment that is not your usual trade or business
•Money earned as a census taker or election worker
More information regarding E.I. that is not insurable will be
provided later.
Theory – Insurable Earnings
Slide 7
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
The rate has currently been set at 2.55 percent of insurable
earnings and the maximum employee contributions is $994.50
per year. (Note: In general, the employer has to match 1.4 times
the amount paid by the employee.)
Theory – EI Test Yourself
Slide 8
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
E.I. and CPP are basic percentage calculations, while the
Canadian Income Tax is more complex since it is progressive.
The Canadian Income Tax figures vary from year to year and are
supplied by the federal government.
In this lesson, you will deal with only weekly figures, but
corresponding figures are also available for other methods of pay,
including bi-weekly, semi-monthly, and monthly pay periods.
Theory – Progressive Tax
Slide 9
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
The Canadian Federal Government uses the following
income tax schedule based on weekly income:
•
17 percent on gross earning up to $569.04
•
26 percent on gross earning from
over $569.04 up to $1138.08
•
29 percent on gross earning over $1138.08
Theory – Tax Schedule
Slide 10
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Provincial Tax
The provincial tax for most provinces (including
Manitoba) is 50 percent of the Federal Tax. Therefore,
if you adjust the figures of 17 percent, 26 percent, and
29 percent to include Provincial Income Tax, they
would be 25.57 percent (17% + 17%/2), 39 percent
(26% + 26%/2), and 43.5 percent (29% + 29%/2)
respectively.
Weekly Income
% Rate of Gross
Income
Up to $569.04
25.5%
From over $569.04 up to
$1138.08
39%
Over $1138.08
43.5%
Theory – Combined Tax
The term
"Canadian Income
Tax" will be used
to describe the
combined Federal
and Provincial
taxes throughout
this course.
Slide 11
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
You will use the figures on the previous page in your
calculations to determine the net income. There are
personal exemptions, such as basic personal
exemptions, dependent exemptions, and others
that may reduce the figure. These items will be dealt
with in future mathematics courses so you will not
consider them here.
Theory – Personal Exemptions
Slide 12
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
In order to calculate basic deductions and net pay, it is
possible to extend the spreadsheet used in calculating
gross pay. The spreadsheet must calculate each
deduction amount and then subtract the sum of the
deductions from gross pay to get net pay.
Theory – Spreadsheets
Slide 13
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Situations arise where an outcome depends on several
conditions. For example, the amount of income tax calculated
depends on the amount earned, in that higher percentages
are applied to higher incomes. The income level must be
matched with the correct percentage.
Another example is a sliding scale for sales commissions
where the commission percentage changes as the sales
volume changes.
The "recursive IF function" provides the solution to handle this
situation. This lesson will introduce the "recursive IF function"
used to test several conditions within a single formula.
Theory – Recursive IF
Slide 14
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
An IF function within another IF function is called a recursive IF
function. (Please note the syntax of the formula below.)
In this example, appropriate comments will be matched with grade
ranges. The formula below tests the grade and then returns the
matching comment.
=IF(C1<=49,"fail",IF(C1>=80,"pass - excellent mark", "pass"))
Theory – Recursive IF
Slide 15
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
In which situations is it necessary to use the "recursive IF
function?" In order to go into more detail regarding the way the
recursive IF function works, the marks example is reviewed.
In that example, the function is used to analyze a condition and
then generate an appropriate comment from three possibilities.
Condition
Comment
49 and below
fail
between 50 and 79,
inclusive
pass
80 and above
pass - excellent
mark
Theory – Recursive IF
Slide 16
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
The following flowchart explains how the recursive IF function
works. Since the value_if_true and value_if_false are text (the
comments) and not numbers, the syntax requires quotation
marks around each possible word.
=IF(C1<=49,"fail",IF(C1>=80,"pass - excellent mark," "pass"))
First, the main IF function will check if
the value in cell C1 is less than 50. If it
is "true," then the word "fail" will be
displayed. If the condition is "false"
(50 or more), there are only two
possibilities left. The program will run
the second IF function to check if the
value in cell C1 is 80 and over. If it is
"true," the statement "pass - excellent
mark" will be displayed. Otherwise, the
word "pass" will be displayed.
Theory – Recursive IF
Slide 17
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
In this example, formulas utilizing the recursive IF function will
calculate the commissions based on the total sales given the
following conditions.
•Total sales of $5000 and below, a commission of 2 percent
•Total sales between $5000 and $10,000, a commission of 3
percent
•Total sales $10,000 and over, a commission of 4 percent
Theory – Recursive IF
Slide 18
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Since there are three conditional possibilities, a recursive IF
function should be used in cells D2 and D3. In this example,
"value_if_true" and the "value_if_false" are values (numbers) and
not text. Therefore, quotation marks are not used in the syntax
for the formula.
=IF(B2<=5000,B2*2%,IF(B2>10000,B2*4%,B2*3%))
=IF(B3>5000,B3*2%,IF(B3>10000,B3*4%,B3*3%))
Theory – Recursive IF
Slide 19
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
In the first worksheet design, an additional step after calculating the commission
amount is needed to calculate the "Total Pay" in column E. A formula is needed
to sum the amounts in the "Salary" and the "Commission" columns.
The spreadsheet below has eliminated showing the commission as a separate
calculation. Try to construct a formula that would automatically add the
commission to Salary to calculate Total Pay.
Theory – Recursive IF
Slide 20
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Values that are variable are often used repeatedly in a worksheet. To take
advantage of the recalculating power of a spreadsheet, it is important to design
the template in such a way that the variable values need only be entered once
and that all subsequent occurrences of the value are updated automatically.
The design solution is to specify frequently used values in their own cells. The
cell addresses of these values are then used to construct formulas that will
automatically recalculate when a change is made.
The following illustrates a poor design. In light of the information above, see if
you can find the flaw.
Theory – Ineffective Design
Slide 21
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Note that the GST and PST rates are specified in separate cells. With this design,
you simply type the new rates in cell B2 and B3. The template will update all the
calculations automatically to reflect the changes. This setup saves time and,
hence, is an efficient template.
There is a further improvement that can be made to make entering formulas in
columns C and D easier: Absolute Cell References.
Theory – Effective Design
Slide 22
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
The default action of the fill-down command is to increase the row and column
references in formulas relative to the row and column of the cell with the
calculated value. In this spreadsheet design, the rows should be referenced in
a relative way, but the cell reference to the values containing rates for PST and
GST must remain constant or absolute.
The dollar signs ($) signal an absolute cell reference. In other words, if a
formula is copied or filled down, the value for PST and GST will always be
from the same source.
Theory – Best Design
Slide 23
30S Applied Math
Mr. Knight – Killarney School
Unit: Personal Finance
Lesson: Net Pay
Build this spreadsheet.
Theory – Best Design
Slide 24