Imperative Payroll
Calculations
David Diaz
6/19/2014
• Calculating federal income tax using the wage bracket
method
• Calculating federal income tax using the percentage and
annualized percentage method
• Calculating federal income tax using supplemental rates
• Calculating the regular rate of pay and overtime
• Net to gross calculations
Calculating Using the Wage Bracket
Method
Using the wage bracket
method you can find the
federal income tax to withhold
by going to the table based on
the employee’s W-4 info and
pay period. Find the correct
line based on wages and scroll
to the correct column based on
their allowances. In this case
our employee is Married with 3
allowances, is paid bi-weekly,
and has $2120 of taxable
wages. In this case their federal
income tax is $167.
Calculating using the percentage
and annualized percentage method
Using the percentage method allowance amounts and percentage
method tables you can calculate federal income tax. We will use the
same example of a married employee, claiming 3 allowances, paid
bi-weekly, and taxable wages of 2120.
They have 3 allowances so we take the bi-weekly allowance amount
of 151.90 and multiple it by 3 for a total of 455.70. Subtract 455.70
from the taxable wages to get 1664.30.
Next we use the table 2 of the percentage method tables, use
column b for married, and scroll down to the correct over under line.
We subtract 1023 from 1664.30 to get 641.30, then multiple that by
15% to get 96.20 and finally add that to 69.80 to get total income
tax of 166.
Using the annualized percentage method is similar to the
percentage method but is how most payroll systems calculate
income tax. We will use the same example of a married employee,
claiming 3 allowances, paid bi-weekly, and taxable wages of 2120.
Since they are paid bi-weekly we will multiply their wages of 2120
by the 26 pay periods to get annual taxable wages of 55120.
They have 3 allowances so we take the annual allowance amount of
3950 and multiple it by 3 for a total of 11850. Subtract 11850 from
the taxable wages to get 43270.
Next we use the table 7 of the percentage method tables, use
column b for married, and scroll down to the correct over under line.
We subtract 26600 from 43270 to get 16670, then multiple that by
15% to get 2500.50, add that to 1815 to get total income tax of
4315.50 and divide that by the 26 pay periods to get 165.98 of
income tax.
Calculating using supplemental
rates
To calculate wages using the supplemental rate
you multiple the total taxable wages by 25% or
39.6% if the employee has over 1,000,000 in
supplemental wages in the year.
Using our example of 2120 of wages we would get
530 for 25% and 839.52 for 39.6%
Regular Rate of Pay and Overtime
Regular Rate of Pay
• Calculated by taking total included wages earned and
dividing it by the total hours worked to earn those wages
during the work week.
• The Fair Labor Standards Act (FLSA) requires that all
nonexempt employees be paid a premium of 50% of their
regular rate of pay for hours worked in excess of 40 per
week.
Regular Rate of Pay
• Earnings include: Shift differentials, nondiscretionary
bonuses, non-cash payments, retroactive pay, on-call
pay, and supplemental disability payments.
• Earnings excluded: Gifts, sick pay, holiday pay, vacation
pay, PTO, jury duty pay, bereavement pay, discretionary
bonuses, benefit plan contributions, overtime, and
premium pay under a union contract.
Discretionary Vs Non-discretionary
Bonuses
•
•
Nondiscretionary bonuses are contractual or agreed upon bonuses or
incentives related to production, efficiency, attendance, quality, or
other measure of performance. These must be included in calculating
the regular rate of pay.
Discretionary bonuses are at the company or owners discretion.
There is not a contractual or agreement in place. These are not
included in calculating the regular rate of pay.
Regular Rate of Pay Example 1
In one week Alan worked 30 hours in the office at $25 per hour and 20
hours in the field at $20 per hour. His regular rate of pay for the week is
$23 per hour.
Office pay: 30x25=750
Field pay: 20x20=400
Total pay: 750+400=1150
Total hours worked: 30+20=50
Regular rate of pay: 1150/50=23
Regular Rate of Pay Example 2
In one week Roberta worked 45 hours at $40 per hour and received a
nondiscretionary bonus of $250. Her regular rate of pay for the week is
$45.56 per hour.
Hourly pay: 45x40=1800
Total pay with bonus: 1800+250=2050
Regular rate of pay: 2050/45=45.56
Overtime Example 1
In one week Alan worked 30 hours in the office at $25 per hour and 20
hours in the field at $20 per hour. His regular rate of pay for the week
is $23 per hour and his gross pay is $1265.
Office pay: 30x25=750
Field pay: 20x20=400
Total pay: 750+400=1150
Total hours worked: 30+20=50
Regular rate of pay: 1150/50=23
Overtime pay: 10x23x0.5=115
Gross pay: 1150+115=1265
Overtime Example 2
In one week Roberta worked 45 hours at $40 per hour and received a
nondiscretionary bonus of $250. Her regular rate of pay for the week is
$45.56 per hour and her gross pay is $2163.90.
Hourly pay: 45x40=1800
Total pay with bonus: 1800+250=2050
Regular rate of pay: 2050/45=45.56
Overtime pay: 5x45.56x0.5=113.90
Gross pay: 2050+113.90=2163.90
Grossing Up Payments
Gross Up Formula
• An IRS-approved formula that employers can use to
determine the taxable gross payment when the employer
wishes to pay the employee's share of tax.
•
Gross Pay= desired net/(100%-total % of all taxes)
Gross Up Example
• Bob’s employer wants to pay him a $1000 net bonus.
Calculate the gross amount to pay Bob.
• Total tax %= 25+6.2+1.45= 32.65%
• 100%- 32.65%= 67.35%
• $1000/67.35%= $1484.78
Overtime Piecework
Acceptable Methods
• There are two acceptable methods for calculating the
overtime due to pieceworkers under the FLSA:
1.
Once the regular rate of pay is determined, the pieceworker
must be paid; in addition to the piecework earnings, an amount
equal to one half the regular rate of pay times the number of
hours worked over 40 in the workweek.
2.
If employee agrees before the work is performed, they may be
paid at a rate of not less than 1 ½ times the regular piece rate
for each piece made during the overtime hours.
Method 1 Example
•
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•
John receives $1.15 for each toy truck he assembles, plus a $.15 bonus per truck
for each truck over 352 that he assembles in a regular 46 hour work week. In one
week John assembled 420 trucks.
Regular piecework earnings: 420 trucks x $1.15 = $ 483.00
Production bonus:
68 trucks x $.15 = $10.20
Total piecework earning:
$483.00 + $10.20 = $ 493.20
Regular Rate of pay:
$493.20/46= $10.72
Overtime premium pay:
Total earnings:
6x10.72x0.5= $32.16
$493.20 + $ 32.16 = $525.36
Method 2 Example
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John receives $3.00 for each truck he paints and $4.50 for each
truck he paints after working 40 hours in a workweek. In one
week, John painted 140 trucks in the first 40 hours and 18 in
the next five hours.
Regular piecework earnings:140 x $3.00 = $420.00
Overtime piece rate:
$3.00 x 1.5 = $4.50
Overtime piecework earning:$4.50 x18 = $81.00
Total earnings:
$420.00 + $81.00 = $ 501.00
Q &A