CHAPTER 10 Payroll

Find the gross pay per paycheck based on salary. 10-1 Learning Outcomes 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.

Find gross pay per paycheck based on salary 10-1-1 Find gross pay per paycheck based on salary Section 10-1 Gross Pay 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 HOW TO: Find the gross earnings per pay period Section 10-1 Gross Pay Nicole earns $36,000 a year and 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

Find the gross earnings for: Examples… Section 10-1 Gross Pay Find 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

Gross earnings (gross pay) Net earnings (net pay/take-home pay) Key Terms… Section 10-1 Gross Pay 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.

Hourly rate or hourly wage Key Terms… Section 10-1 Gross Pay 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.

Regular pay Overtime pay Key Terms… Section 10-1 Gross Pay Regular pay Earnings based on an hourly rate of pay. Overtime pay Earnings based on overtime rate of pay.

STEP 1 STEP 2 STEP 3 10-1-2 Gross pay per week based on hourly wages Section 10-1 Gross Pay Find the regular pay by multiplying the number of hours (40 or less) by the hourly wage. STEP 1 STEP 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. STEP 3 Add the figures from Step 1 and Step 2.

Add the regular and overtime pay: $498.75 10-1-2 Gross pay per week based on hourly wages Section 10-1 Gross Pay Theresa worked 45 hours last week. If her hourly rate is $10.50/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

Find the weekly earnings for these employees: Examples… Section 10-1 Gross Pay 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, who worked 48 hours $338 Allison, who worked 44 hours. $299

Gross pay per paycheck based on piecework 10-1-3 Gross pay per paycheck based on piecework Section 10-1 Gross Pay Many employers motivate employees to produce more by paying according to the quantity of acceptable Such piecework rates are typically offered in production or manufacturing jobs.

Straight piecework rate Key Terms… Section 10-1 Gross Pay 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 (escalating) piece rate Piecework rate that increases as more items are produced.

If he assembles 317 boards how much will he earn? An Example… Section 10-1 Gross Pay Jorge assembles microchip boards. He is paid on a differential piecework basis. If he assembles 317 boards how much will he earn? 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

An Example… Rates are as follows: From 1-100 $1.32 per board Section 10-1 Gross Pay 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 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

$203.40 An Example… Try this example Section 10-1 Gross Pay Jillian gets paid a differential piece rate for each shirt she sews. Consult the chart 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

Many salespeople earn a commission, a percentage based on sales. Gross pay per paycheck based on commission 10-1-4 Section 10-1 Gross Pay Many salespeople earn a commission, a percentage based on sales.

Salary plus commission Key Terms… Section 10-1 Gross Pay 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: Quota Key Terms… Section 10-1 Gross Pay 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.

Marisa’s earnings are $720 An Example… Section 10-1 Gross Pay 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 are $720

How much were her total earnings? An Example… Section 10-1 Gross Pay Melanie Brooks works for a cosmetics company and earns $200 a week in salary plus 30% commission on all sales over $500. 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. The total is $425.

EXERCISE SET A 1. Find the gross earnings for the employee. A regular week is 40 hours and the overtime rate is 1.5 times the regular rate. M T W R F S S Pick, J. 8 8 8 8 8 4 0 Hr. wage: $11.35 8 + 8 + 8 + 8 + 8 + 4 = 44 hours 11.35(40) = 454.00 11.35(4)(1.5) = 68.10 454.00 + 68.10 = $522.10

EXERCISE SET A 2. Find the gross earnings for the employee. A regular week is 40 hours and the overtime rate is 1.5 times the regular rate. M T W R F S S Mitze, A. 8 8 8 8 8 2 4 Hr. wage: $12.00 8 + 8 + 8 + 8 + 8 + 2 + 4 = 46 hours 12.00(40) = 480 12.00(6)(1.5) = 108 480 + 108 = $588

EXERCISE SET A 3. Varonia Reed is paid a weekly salary of $1,036. What is her annual salary? 1,036(52) = $53,872 Glenda Chaille worked 27 hours in one week at $12.45 per hour. Find her gross earnings. $12.45(27) = $336.15 4.

EXERCISE SET A 5. Ronald James is paid 1.5 times his hourly wage for all hours worked in a week exceeding 40. His hourly pay is $18.55 and he worked 52 hours in a week. Calculate his gross pay. $18.55(40) = $742 $18.55(12)(1.5) = $333.90 $742 + $333.90 = $1,075.90

EXERCISE SET A 6. Patsy Hilliard is paid 5% commission on sales of $18,200. Find her gross pay. $18,200(0.05) = $910 Find the gross earnings if Juanita Wilson earns $275 plus 4% of all sales over $3,000 and the sales for a week are $18,756. 18,756 - 3,000 = 15,756 15,756(0.04) = 630.24 275 + 630.24 = 905.24 7.

Find federal tax withholding per paycheck using IRS tax tables. 10-2 Learning Outcomes 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.

Find federal tax withholding per paycheck using IRS tax tables 10-2-1 Section 10-2 Payroll Deductions 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.

Federal tax withholding Key Terms… Section 10-2 Payroll Deductions Income tax Local, state or 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 W-4 form Key Terms… Section 10-2 Payroll Deductions 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.

Tax-free or tax-deferred benefits? Adjusted gross income Section 10-2 Payroll Deductions 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?

Examples… Section 10-2 Payroll Deductions Using the tax tables in your text, find the amount of tax to be withheld for the following employees: See pages 353 - 354 LeShonda, single, paid semimonthly, claiming one allowance, and earning $1,700 per pay period. $192 Ricardo, married, paid weekly, claiming 4 allowances and earning $585 per pay period. $4

Find federal tax withholding per paycheck using the IRS percentage method 10-2-2 Section 10-2 Payroll Deductions Instead of using tax tables, many companies calculate federal tax withholding using tax rates. The employer deducts a tax-exempt amount based on the number of withholding allowances the employee claims. The resulting amount is called the percentage method income.

Find the withholding tax using the percentage method HOW TO: Section 10-2 Payroll Deductions 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.

An Example… Section 10-2 Payroll Deductions 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 fig. 10-4, at right, and multiply the withholding allowance amount by two. Biweekly: $146.15 x 2 = $292.30

An Example… Section 10-2 Payroll Deductions 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. Subtract the exempt amount ($292.30) from the adjusted gross income ($3,150.00) and the result is $2,857.70. Consult the tax tables shown in figure 10-5 in your text. Table 2 is the appropriate table for Dollie’s earnings: single and paid on a biweekly basis. See page 357

The amount of tax to be paid is $541.08. An Example… Section 10-2 Payroll Deductions 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. Identify the appropriate line where her income falls: “over $1,442 but not over $3,377” The tax is $187.15 plus 25% in excess of $1,442. $2,857.70 (taxable income) - $1,442 = $1415.70 x 25% = $353.93 Add $187.15 + 353.93 = $541.08 The amount of tax to be paid is $541.08.

Find Social Security and Medicare tax per paycheck 10-2-3 Section 10-2 Payroll Deductions Find the amount of the earnings subject to be taxed; adjusted gross income less than or equal to $110,100 annually. Social Security taxes are currently capped at $110,100 (this threshold can change). Multiply the taxable amount by 4.2% or 0.042 to find the amount in Social Security taxes.

How much does he owe in Social Security and Medicare taxes? HOW TO: Social Security and Medicare tax Section 10-2 Payroll Deductions 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 = $69.45 and Medicare = $23.98

Social Security and Medicare tax Section 10-2 Payroll Deductions 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: 10.4% in Social Security and 2.9% in Medicare.

Find the gross pay for the pay period. 10-2-4 Find net earnings per paycheck Section 10-2 Payroll Deductions 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. Find the Federal withholding tax using one of the two methods. Tables or percentage.

Find other withholding taxes, such as state tax. 10-2-4 Find net earnings per paycheck Section 10-2 Payroll Deductions 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.

An Example… Section 10-2 Payroll Deductions 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.

Withholding tax from Figure 10-3 = $11 An Example… Section 10-2 Payroll Deductions Retirement fund = $588 x 0.04 = $23.52 Withholding tax from Figure 10-3 = $11 Social Security = $588 x 0.042 = $24.70 Medicare = $588 x 0.0145 = $8.53 Insurance = $27.48 Total deductions = $95.23 Net earnings = $588 - $95.23 = $492.77

EXERCISE SET A 1. Use Figure 10-3 to find the amount of federal tax withholding for the gross earnings of the following married persons who are paid weekly and have the indicated number of withholding allowances. $682, zero allowances Locate 680 in the “At least” column and move across to the column with 0 at the top. Withholding tax is $53.

EXERCISE SET A 2. Use Figures 10-4 and 10-5 , the percentage method tables, to find the amount of federal income tax to be withheld from the gross earnings of married persons who are paid weekly and have earned $2,215, and claim two allowances. 73.08(2) = 146.16 2,215 - 146.16 = 2,068.84 2,068.84 - 1,515 = 553.84 553.84(0.25) = 138.46 Tax = 187.15 + 138.46 = 325.61

Yearly gross income of $24,000 Social Security = 24,000(0.042) = 1,008 EXERCISE SET A 3. Find the employee’s Social Security and Medicare taxes deducted for each pay period. Yearly gross income of $24,000 Social Security = 24,000(0.042) = 1,008 Medicare = 24,000(0.0145) = 348

Biweekly gross income of $1,426 Social Security = 1,426(0.042) = 59.89 EXERCISE SET A 4. Find the employee’s Social Security and Medicare taxes deducted for each pay period. Biweekly gross income of $1,426 Social Security = 1,426(0.042) = 59.89 Medicare = 1,426(0.0145) = 20.68

Find an employer’s SUTA and FUTA tax due for a quarter. 10-3 Learning Outcomes Find an employer’s total deposit for withhold tax, Social Security tax, and Medicare tax per pay period. Find an employer’s SUTA and FUTA tax due for a quarter.

Find Employer’s Total Deposit for Withholding Tax, Social Security Tax and Medicare Tax 10-3-1 Section 10-3 The Employer’s Payroll Taxes Find the total of withholding tax for all employees for the pay period. Find Social Security tax and Medicare tax for all employees for thee period. Multiply by two to include the employer’s portion. Add the Social Security, Medicare and withholding tax amounts for total amount.

Find Employer’s Total Deposit for Withholding Tax, Social Security Tax and Medicare Tax HOW TO: Section 10-3 The Employer’s Payroll Taxes Employee Gross Earnings Withholding Social Security Medicare Net 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

Employee’s Contribution Total Employer Deposit Find Employer’s Total Deposit for Withholding Tax, Social Security Tax and Medicare Tax HOW TO: Section 10-3 The Employer’s Payroll Taxes Employee’s Contribution Employer’s Contribution Total Social Security $447.58 $895.16 Medicare $104.68 $209.36 Withholding $751.03 Total Employer Deposit $1,855.55

Find an Employer’s SUTA Tax and FUTA Tax for a Quarter 10-3-2 Section 10-3 The Employer’s Payroll Taxes FUTA (Federal Unemployment Tax Act) and SUTA (State Unemployment Tax) are paid quarterly—entirely by the employer. They 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 Section 10-3 The Employer’s Payroll Taxes 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 $500, no payment is made that quarter. The amount is added to the following quarter.

SUTA = $378 FUTA = $ 56 An Example… Section 10-3 The Employer’s Payroll Taxes 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

EXERCISE SET A 26. Vince Bremaldi earned $32,876 last year. The state unemployment tax paid by his employer is 5.4% of the first $7,000 earned in a year. How much SUTA tax must Vince’s employer pay for him? How much FUTA tax must Vince’s employer pay? SUTA tax = 0.054(7,000) = 378 FUTA tax = 0.008(7,000) = 56

Exercises Set A

Practice Test

PRACTICE TEST 2. June Jackson earns $18.59 an hour. Find her gross earnings if she worked 46 hours (time and a half for overtime over 40 hours). 18.59(40) = 743.60 18.59(6)(1.5) = 167.31 Gross earnings = 743.60 + 167.31 = 910.91

PRACTICE TEST 4. Stacey Ellis is paid at the following differential piece rate: 1–100, $2.58; 101–250, $2.72; 251 and up, $3.15. Find her gross earnings for completing 475 pieces. 2.58(100) = 258 2.72(150) = 408 3.15(225) = 708.75 258 + 408 + 708.75 = 1,374.75

PRACTICE TEST 6. Carlo Mason works on 5% commission. If he sells $17,500 in merchandise, find his gross earnings. 0.05(17,500) = 875 Find the Social Security tax (at 4.2%) and the Medicare tax (at 1.45%) for Anna Jones, whose gross earnings are $513.86. Round to the nearest cent. Social Security = 0.042(513.86) = 21.58 Medicare = 0.0145(513.86) = 7.45 8.

PRACTICE TEST How much income tax should be withheld for Terry McLean, a married employee who earns $686 weekly and claims two allowances? (Use Figure 10-3 .) Locate 680 in the “At least” column and move across to the column with 2 at the top. The tax is $41. If LaQuita White had net earnings of $877.58 and total deductions of $261.32, find her gross earnings. 877.58 + 261.32 = 1,138.90 10. 12.

146.15(4) = 584.60 amount by which gross earnings are reduced PRACTICE TEST 14. Amiee Dodd is married, earns $3,521 biweekly, and claims four withholding allowances. By how much must her gross earnings be reduced? From Figure 10-4 , one withholding allowance for a biweekly payroll period is $146.15. 146.15(4) = 584.60 amount by which gross earnings are reduced

PRACTICE TEST 16. Emilee Houston is single and is paid semimonthly. She earns $1,682 each pay period and claims zero withholding allowances. How much federal income tax is withheld from her paycheck? Use Figure 10-2 to locate $1,680 in the “At least” column and move across to the column with 0 at the top. The amount is $235, so $235 is withheld from her paycheck.

18. PRACTICE TEST Social Security = 673.80(0.042) = 28.30 Complete the weekly register for married employees in Table 10-3 . The number of each person’s allowances is listed after each name. Round to the nearest cent. Use Figure 10-3 . Social Security = 673.80(0.042) = 28.30 Medicare = 673.80(0.0145) = 9.77 Withholding tax = 50.00 Other deductions = 12.87 Total deductions = 100.94 Net earnings = 673.80 - 100.94 = 572.86 Employee (allow) Gross earnings Social Security Medicare Withholding tax Other deduct. Net earnings Love (1) $673.80 ?? $12.87

20. PRACTICE TEST Social Security = 577.15(0.042) = 24.24 Complete the weekly register for married employees in Table 10-3 . The number of each person’s allowances is listed after each name. Round to the nearest cent. Use Figure 10-3 . Social Security = 577.15(0.042) = 24.24 Medicare = 577.15(0.0145) = 8.37 Withholding tax = 20.00 Other deductions = 4.88 Total deductions = 57.49 Net earnings = 577.15 - 57.49 = 519.66 Employee (allow) Gross earnings Social Security Medicare Withholding tax Other deduct. Net earnings Ferrante (3) $577.15 ?? $4.88

PRACTICE TEST 22. How much SUTA tax must Anaston, Inc., pay to the state for a parttime employee who earns $5,290? The SUTA tax rate is 5.4% of the wages. 5,290(0.054) = 285.66