Net Pay PF-L2 Objectives: Calculate Net Pay Learning Outcome B-1

Basic deductions include Income Tax Canada Pension Plan (CPP) 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

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

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

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

Test Yourself

Gratuities, tips, and most earnings are insurable. 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

The rate has currently been set at 2 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

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

17 percent on gross earning up to $569.04 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

Weekly Income % Rate of Gross Income 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. The term "Canadian Income Tax" will be used to describe the combined Federal and Provincial taxes throughout this course. 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

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

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

Situations arise where an outcome depends on several conditions 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

=IF(C1<=49,"fail",IF(C1>=80,"pass - excellent mark", "pass")) 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

In which situations is it necessary to use the "recursive IF function 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

=IF(C1<=49,"fail",IF(C1>=80,"pass - excellent mark," "pass")) 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

Total sales of $5000 and below, a commission of 2 percent 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

=IF(B2<=5000,B2*2%,IF(B2>10000,B2*4%,B2*3%)) 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

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

Values that are variable are often used repeatedly in a worksheet 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

Note that the GST and PST rates are specified in separate cells 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

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

Build this spreadsheet. Theory – Best Design