Unit 4 Determining Gross Earnings McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Hourly Rate Plan Hourly rate plans: –Employee receives a fixed amount for each hour they work –Example: Samio Martinez has an hourly rate of $28.60 per hour. He works 40 hours. Calculate Samio’s gross earnings? –40 hours x $28.60 = $1, –Samio’s gross earnings: $1, Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-3

Hourly Rate Plan Hourly rate plan (fractions of an hour): –pro-rate based on the fraction of hours worked at his regular rate of pay. –convert the fraction hour to decimal amounts ¼ =.25 ½ =.50 ¾ =.75 Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 10:1510:45 10:30 10:00 4-4

Hourly Rate Plan Hourly rate plan (fractions of an hour) –Example: Mr. Martinez worked only 37 ½ hours. His hourly rate is $28.60 per hour. What is Mr. Martinez’ gross earnings? hours x $28.60 = $1, Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-5

Hourly Rate Plan Hourly rate plan –Suited for employees whose work schedules vary from one period to another –Widely used for: Production employees Retail stores Restaurants Hotels Construction workers Service employees Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-6

Hourly Rate Plan Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-7

Handling Overtime Payments FLSA ( Fair Labor Standards Act) –non-exempt employees must be paid an overtime rate for all the time worked beyond regular hours (40 hours) –Overtime rate is 1.5 times the regular rate Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-8

Handling Overtime Payments 4-9

Handling Overtime Payments FLSA ( Fair Labor Standard Act) –Exempt employees are not covered under FLSA for the overtime provision. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-10

Handling Overtime Payments Example: –Mr. Martinez worked 43 hours. –His regular rate is $ What is Mr. Martinez’s overtime rate? –$28.60 x 1.5 = $42.90 Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-11

Handling Overtime Payments Example: –What is Mr. Martinez’s regular and overtime gross earnings ? Regular gross earnings - $28.60 x 40 = $1, Overtime gross earnings - $42.90 x 3 = $ Total gross earnings = $1, $ = $ Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-12

Hourly Rate Plan Hourly rate plan –Employee hours are usually recorded on time cards. –Time card includes: Regular hours Overtime hours Holiday hours Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-13

Night Bonus Night bonus: –Extra pay for employees that work evening or night shift –also called “shift differential” –is in addition to the overtime pay Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-14

Night Bonus Example: Donald Teery hourly rate is $ His company pays $3.00 per hour as a night bonus for work done between 8:00 p.m. and 8:00 a.m. Donald worked from 9:30 a.m. to 10:30 p.m. After 5:30 pm., all hours were considered overtime hours. Calculate Donald’s gross earnings? Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-15

Night Bonus Example: –Calculate Donald’s gross earnings? Regular hours – 9:30 a.m.– 5:30 p.m. = 8 hours Overtime hours – 5:31 p.m. – 10:30 p.m. = 5 hours Night bonus hours – 8:00 p.m.- 10:30 p.m. = 2.5 hours Total Gross earnings calculation –Regular earnings = 8 hours x $10.00 = $ –Overtime earnings = 5 hours x $15.00 = $75.00 –Night bonus = 2.5 hours x $ 3.00 = $7.50 –Total Gross earnings= $ Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-16

Salary Plan Salaried employees: –Are paid a fixed amount for each payroll period –Exempt employees are: managers and supervisors – are not subject to overtime provisions lower-level salaried employees - are subject to overtime provisions Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-17

Salary Plan Salaried employees: –Time lost - employees worked less than the required number of hours the salary must be adjusted for the hours not worked. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-18

Salary Plan Example # 1 : –Mr. McDermitt is paid $1,325 for a regular 40-hour week. He took three (3) hours of time off. He is paid on a biweekly payroll period. What is his hourly rate? $1,325 / 40 hours = $33.13 Gross earnings calculation: Week 1 - $ 1,325 Week 2 - $ x 37 = $ Total gross earnings = $1,325 + $1, = $ Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-19

Salary Plan Example # 2 : –Helen Tillery is a supervisor. Her salary is $ 660 for a regular 40-hour week. The company is required to pay Helen overtime. On this week She worked 43 hours. What is her hourly rate? $660 / 40 hours = $16.50 What is her overtime rate? $16.50 x 1.5 = $ Gross earnings calculation: Regular earnings - $ 660 Overtime earnings - $24.75 x 3 = $ Total gross earnings = $660 + $74.25 = $ Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-20

Salary Plan Example # 3 : –Rita Lopez has a regular work week of 40 hours. –She receives overtime for all hours beyond 40 in a week. –Her regular salary is $1,950 per month. –During this month she worked 5 hours overtime. 4-21

Salary Plan Example # 3 : –What is Rita’s hourly and overtime rate? Annualize her monthly earnings: $1,950 x 12 months = $23,400 Weekly salary = $23,400 / 52 weeks = $450 Hourly rate = $450 / 40 hours = $11.25 Overtime rate = $11.25 x 1.5 = $ Gross earnings calculation: Regular monthly earnings- $1,950 Overtime monthly earnings - $16.88 x 5 hours = $84.40 Total gross earnings = $1,950 + $84.40 = $2,

Piece Rate Plan Piece rate pay: –Employees receive a certain amount for each item they produce. –Example #1 : Marjorie Yellowbird works in a factory. Her piece rate is 28 cents. During this week she completed 2,100 items. Gross Earnings = 2,100 items x.28 = $588 Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-23

FLSA Minimum Wage Requirements Piece-rate plan and Fair Labor Standards Act: –employees must earn at least equal to the minimum wage. –employees are subject to overtime pay provisions for hours worked beyond 40 hours per week. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-24

FLSA Minimum Wage Requirements Piece-rate plan and Fair Labor Standards Act: –Two methods are used: Method #1 – employee earns 1.5 times the hourly rate for the overtime hours. Method # 2 – employee earns an agreed-upon piece rate for all items produces during overtime hours. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-25

FLSA Minimum Wage Requirements Example Method # 1 : –Ms. Ong worked 43 hours and had a gross earnings of $480 based on her piece rate. Her hourly rate is: $480 / 43 = $11.16 Her Overtime rate is: $11.16 x.5 = $ 5.58 Her gross earnings are : Regular earnings : $480 Overtime earnings: $5.58 x 3 = $16.74 Gross Earnings = $ $ Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-26

FLSA Minimum Wage Requirements Example Method # 2 : –Lois Magnum works in a furniture factory, her piece rate is 42 cents and the established overtime rate per piece is 63 cents. –During this week she completed 850 items in the regular 4 hours and 54 items in 3 overtime hours. Her gross earnings are : Regular earnings : $.42 x 850 items = $ Overtime earnings: $.63 x 54 items = $34.02 Gross Earnings = $ $34.02 Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-27

Commission Plan Commission: –Incentive plan for salespeople –Earnings depend on the amount of goods sold –Each salesperson receives a percentage of the sales for the period –Commission rate = percentage paid based on sales Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-28

Salary-Commission Plan Salary-commission plan: Incentive plans for sales people Encourages higher sales level Provides security to employees on period of low sales Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-29

Salary-Commission Plan Example: Stanley Martin is a sales manager. He receives a salary of $ 405 a week plus commission of 9%. He also has a sales quota of $2, Calculate gross earnings: –Total sales minus quota = 7500 – 2000= 5,500 –Commission = 5,500 x.09 = $495 –Salary and commission earnings = $405+ $495 = $900 Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-30

Bonuses and Profit Sharing Bonus: –Reward for extra effort on the job –Different types of bonuses: Gift after a successful period of operations Amount paid based on the kind of goods sold. Compensation paid to managers if profits/sales rise above certain level. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-31

Bonuses and Profit Sharing Profit Sharing: –the firm shares with the employees part of the profits that it earns each year. –is paid on cash or stock –is placed on the retirement accounts –encourages employee’s hard work and loyalty Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-32

Tips –“To insure prompt service” (TIPS) –Is a gift from the customer for services obtained –Any employee receiving more than $ 20 a month in tips is considered a “tipped employee” –Under FLSA – the tips and the hourly wage must be equivalent or higher than the minimum wage. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-33

Unit Summary Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-34

Questions? Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 4-35