# 5.1 Payroll - Gross Earnings (Wages and Salaries)

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5.1 Payroll - Gross Earnings (Wages and Salaries)
Calculating: P = Gross Earnings (Pay) Overtime Method 1: Premium Method:

5.1 Gross Earnings (Wages and Salaries)
Method 2: Overtime earnings using time-and-a-half rate for over 8 hours of work per day: time-and-a-half rate =

5.1 Gross Earnings (Wages and Salaries)
More definitions: Double time: employees earn double time for holidays Shift differential: additional amount per hour paid to employees to work undesirable shifts Split-shift premiums: employee is paid a premium for splitting hours to cover busy periods.

5.1 Gross Earnings (Wages and Salaries)
Find equivalent earnings for different pay periods: Common Pay Periods Monthly 12 paychecks/year Semimonthly 24 paychecks/year Biweekly 26 paychecks/year Weekly 52 paychecks/year

5.2 Payroll - Gross Earnings (Commission)
Gross earnings (P) = Commission Rate (R)  Sales (B) Variable commission rate Sales Rate Up to \$10,000 6% \$10,001-\$20,000 8% \$20,001 and up 9%

5.2 Gross Earnings (Commission)
Salary plus commission: Gross earnings (P) = Fixed earnings + Commission Rate Drawing account - a loan against future commissions. The salesperson receives money in advance and pays a monthly fee. Gross earnings (P) = Earnings - Draw

5.2 Gross Earnings (Commission)
Quota bonus system: quota is a minimum amount of sales expected from the employee Gross earnings (P) = Commission Rate  (Sales – Quota)

5.2 Gross Earnings (Commission)
Finding gross earnings with commission and override Override: Payment to supervisor for sales by the supervisor’s staff – calculated like a commission Gross earnings (P) = Salary + Commission + Override

5.3 Gross Earnings (Piecework)
Piecework rate: pays an employee so much per item produced: Gross earnings (P) = Number of items  Pay per item

5.3 Payroll - Gross Earnings (Piecework)
Using differential piecework: pay rate increases once a quota is reached example: Sales Rate 1-100 units \$2.10 each \$2.25 each 151 or more units \$2.40 each

5.3 Gross Earnings (Piecework)
Chargebacks: To discourage mistakes, many companies require the employee to share the cost of a spoiled item. These penalties are called chargebacks Gross earnings (P) = Piecework earnings – (spoiled items  chargeback rate)

5.3 Gross Earnings (Piecework)
Guaranteed hourly wage: Often this is the minimum wage. When piecework earnings dip below the guaranteed hourly wage, this wage is used. Overtime earnings: Overtime piecework is usually paid at 1½ times the regular piecework rate.

5.4 Payroll - Social Security, Medicare, and Other Taxes
FICA – Federal Insurance Contributions Act (FICA) tax is the tax that pays for social security. FICA = 6.2% of earnings with a maximum earnings subject to this tax Medicare – tax that pays for medicare Medicare tax = 1.45% with no maximum earnings subject to this tax Self-employed – FICA = 2  6.2% = 12.4% medicare tax = 2  1.45% = 2.9%

5.4 Social Security, Medicare, and Other Taxes
Example: finding FICA and medicare tax for a self-employed worker. A self-employed worker makes \$44,480 per year. Find the FICA and medicare tax. FICA = \$44,480  12.4% = \$44,480  = \$ medicare tax = \$44,480  2.9% = \$44,480  = \$

5.4 Social Security, Medicare, and Other Taxes
State disability insurance – varies from state to state. A typical program deducts 1% of the first \$31,800 earned

5.5 Payroll - Income Tax Withholding
Form W-4 for withholding is completed at time of employment. The questions determine your number of allowances. There are 2 ways to determine withholding: wage bracket method and percentage method.

5.5 Income Tax Withholding
Wage bracket method – use tables in book. There are different tables for weekly/monthly income and also for single/married persons. Example: J. Koehler is married, claims 1 withholding allowance and makes \$510/week Look at the weekly payroll for married persons table. Get rate for \$510/week under column for 1 exemption – withholding is \$30 (8th edition table)

5.5 Income Tax Withholding
Percentage method: use percentage method tables Example: E. Owens is single claiming one exemption and earns \$2500/month. Find his withholding using the percentage method. Get amount per allowance from first table: \$275 for monthly calculate: \$ (1 allowance  \$275) = \$2225 Get rate from monthly table: 15% Withholding = \$ % (\$ \$833) = \$270.00

5.5 Income Tax Withholding
State withholding = tax rate  income

6.1 Taxes - Sales Tax Sales tax (part) = amount of sale  sales tax rate P = B  R State sales tax rates are in table 6.2 by state Example: A customer purchases several pizzas for \$ Sales tax in the state is 5%. Find the sales tax and the total amount collected from the customer.

6.1 Sales Tax If you know any 2 of 3 values from P = B  R, you can compute the third value. Example: Sales tax on a lawn mower is \$ If the sales tax rate is 6%, find the price of the mower.

6.1 Sales Tax Excise tax: for gasoline, tires, luxury cars, and some services. It is either a percent of the price or a fixed amount. Example: For a sale of \$125 with a sales tax rate of 5% and an excise tax rate of 8%, find the sales tax, excise tax and total price.

6.2 Taxes - Property Tax Fair market value – reasonable price for property. Example: Given a fair market value of \$120,000 and a rate of assessment of 30% find the assessed valuation.

6.2 Property Tax Agency responsible for levying tax needs to calculate annual property tax rate Example: If total tax needed is \$10,000,000 and total assessed value is \$250,000,000 what is the tax rate?

6.2 Property Tax Express 4% in Dollars per \$100.
Mills – one mill = .1 cent per \$ = .001 dollar per \$ Express 4% in mills.

6.2 Property Tax Calculating property tax: tax = tax rate  assessed valuation Example: Given an assessed valuation of \$30,000 and a tax rate of 11 mills find the property tax.

6.3 Taxes - Personal Income Tax
Ways to do your income tax Fill out the forms yourself – obtain from the library, bank, or government office Pay a professional tax preparer Use a software package (e.g. Turbotax or Taxcut) Use the web for free – similar to a software package except you have to do everything in one session (can’t save your work for later)

6.3 Personal Income Tax Doing your income tax:
Adjusted gross income = wages + interest + other income – IRA contributions Find the taxable income = AGI – deduction (standard or itemized) – personal exemption(s)  \$3200 Find the tax from tax rate schedule If tax is lower….refund = withheld – tax If tax is higher….tax due = tax – withheld

6.3 Personal Income Tax Example: K. Chandler has job income of \$22,000, interest of \$300, misc. income of \$200, dividend income of \$50 and adjustments to income of \$1000. What is his adjusted gross income?

6.3 Personal Income Tax Example: The Cooks are married and they have 2 exemptions. They have adjusted gross income of \$70,000 and total itemized deductions of \$12,000. What is their taxable income and how much tax is owed? \$12,000 > standard deduction of \$10,000 (pg . 239) so itemized deductions are used.

6.3 Personal Income Tax Example: R. Jones is single and has taxable income of \$32,000 and federal income tax withheld of \$100 weekly. Determine the amount of his refund or tax due.

Invoice – a printed record of a (business) purchase or sale. Basic format: Quantity Description Unit Price Extension Total 30 Screwdriver \$2 \$60 50 Hammer \$3 \$150 20 Saw \$1.50 \$30 Invoice Total \$240 Shipping/Insurance Total Amount Due \$270

Trade Discount Example: The list price of a lawn mower is \$350 and the trade discount is 15%. Find the net cost.

Series or chain discount: two or more discounts are combined Example: Oak hardware is offered a series discount of 20/10 on a cordless drill with a list price of \$150. Find the net cost after the series discount. First discount = 20%  \$150 = 0.2  \$150 = \$30 Subtract discount: \$150 - \$30 = \$120 2nd discount = 10%  \$120 = 0.1  \$120 = \$12 Net cost: \$120 - \$12 = \$108

Using complements to solve series discounts: Example: Oak hardware is offered a series discount of 20/10 on a cordless drill with a list price of \$150. Find the net cost after the series discount. For a series discount of 20/10, the complements of 20% and 10% are .8 and .9. Multiplying the complements gives .8  .9 = .72 Net cost: 0.72  \$150 = \$108

8.2 Buying - Single Discount Equivalents
A single discount equivalent: Given a series discount, the single discount equivalent is one discount that yields the same net cost as the series of discounts. To get the single discount equivalent, multiply the complements of all the discounts together and subtract your answer from 1.

8.2 Buying - Single Discount Equivalents
Finding a single discount equivalent: Example: If Air Clean Manufacturing offered a 20/10 discount to all wholesale accounts on all heater filters, what is the single discount equivalent? For a series discount of 20/10, the complements of 20% and 10% are .8 and .9. Multiplying the complements gives .8  .9 = .72 Subtract this net cost equivalent from 1: = 0.28 = 28% (single discount equivalent)

8.2 Single Discount Equivalents
Finding the net cost using complements: Example: The list price of an oak entertainment center is \$970. Find the net price if trade discounts of 20/15/27½ are offered. Net cost = List price  complements of individual discounts ( = .8, = .85, = .725) Net cost = \$970  .8  .85  = \$478.21

8.2 Single Discount Equivalents
Solving for list price: Example: Find the list price of a handmade rug from Pakistan that has a net cost of \$544 after trade discounts of 20/20. Net cost = List price  complements of individual discounts ( = .8) \$544 = List price  .8  .8 = .64  List price List price = \$544  .64 = \$850

8.2 Single Discount Equivalents
Finding the trade discount : Example: The list price of a compact disc player is \$550. If the wholesaler offers the system at a net cost of \$341, find the single trade discount rate being offered. Net cost = List price  complement of discount \$341 = \$550  complement of discount Complement of discount = \$341  \$550 = .62 discount = = .38 = 38%

8.2 Single Discount Equivalents
Matching a competitors price: Example: S and B distributors offered a 20% trade discount on small compressors list-priced at \$450. Find the trade discount that must be added to match a competitors price of \$342. Let x = complement of new discount Net cost = List price  complement of discounts \$342 = \$450  .8  x = \$360  x x = \$342  \$360 = .95 new discount = = .05 = 5% so S and B must offer a 20/5 series discount

8.3 Buying - Discounts: Ordinary Dating Method
Cash discount different conventions from trade discount incentives for timely payment Ordinary dating method example: 2/10, net/30 2: rate of discount (2%) 10: 2% discount is offered for 10 days net/30: 30 days for no discount, late charge applied after 30 days

8.3 Discounts: Ordinary Dating Method
Finding cash discount dates: A Hershey Chocolate invoice is dated January 2 and offers terms of 2/10, net 30. (a) find the last date for the 2% discount last date for discount = Jan 12 (add 10 to 2) (b) find the net payment date last date for net payment is 30 days past Jan 2, since there are 31 days in January the date is February 1

8.3 Discounts: Ordinary Dating Method
Finding the amount due on an invoice: An invoice for \$840 is dated July 1 with terms of 2/10, n/30. If it is paid on July 8 and shipping charges are \$18.70, find the amount due. Payment was 7 days after invoice so the cash discount applies:

8.3 Discounts: Ordinary Dating Method
Using postdating “as of” for cash discounts: Seller uses a date later than the invoice date as the start date for the cash discount. Example: An invoice is dated October 21 as of November 1 with terms of 3/15, net/30. Find the last date on which the cash discount may be taken. Last date for discount = November 16 (1+15)

8.3 Discounts: Ordinary Dating Method
Find the amount due when goods are returned: An invoice for \$380 is dated March 9, and offers terms of 4/10, net/30. If \$75 of goods are returned and the invoice is paid on March 17, what amount is due? The invoice is paid 8 days after its date (17 – 9 = 8) so the cash discount applies. \$380 - \$75 = \$305 (goods retained) cash discount = .04  \$305 = \$12.20 amount due = \$305 - \$12.20 = \$292.80

8.4 Buying - Cash Discounts: Dating Methods
Other Dating Methods: Note: When the net payment date is not given : the net payment date defaults to 20 days past the last discount date Method Example Conditions for discount End Of Month 3/10 EOM or 3/10 prox payment is made within 10 days of end of month Add a month if invoice date is 26th or later Receipt Of Goods 2/10 ROG payment is made within 10 days from receipt of goods Extra dating 2/10-50 extra payment is made within ( ) or 60 days from the date of the invoice

8.4 Cash Discounts: Other Dating Methods
Finding credit for partial payment An invoice for \$1140, dated March 8, offers terms of 2/10 proximo. A partial payment of \$450 is made on April 5. Find (a) the amount credited for the partial payment, (b) the balance due on the invoice, and (c) the cash discount earned. (a) 100% - 2% = 98% = .98 Amount paid = .98  credit given so credit = \$450  .98 = \$ (b) balance due = \$ \$ = \$ (c) cash discount = \$ \$450 = \$9.18