1. Chapter 6
Payroll

2. Section 1
Gross Earnings: Wages

3. Payroll Process Gross Earnings Deductions Net Pay
Salaries and Wages (Section 1)
Piecework and Commission (Section 2)
Deductions
Social Security, Medicare, and other Taxes (Section 3)
Income Tax Withholding (Section 4)
Net Pay

4. Section 1 - Intro Gross pay: determined by time.
Ledger (electronic or paper) is used to organize time worked.
Employee
Hours Worked
Total Hours
Rate
Gross Earnings S M T W Th F
Petty, R.
---
$7.59
Dean, D.
$8.01

5. Payroll Ledger Gross Earnings = Number of Hours Worked x Rate per hour
Employee
Hours Worked
Total Hours
Rate
Gross Earnings S M T W Th F
Petty, R.
---
$7.59
Dean, D.
$8.01
Employee
Hours Worked
Total Hours
Rate
Gross Earnings S M T W Th F
Petty, R.
--- 8
6.5 6 4
32.5
$7.59
$246.68
Dean, D. 7 35
$8.01
$280.35
Employee
Hours Worked
Total Hours
Rate
Gross Earnings S M T W Th F
Petty, R.
--- 8
6.5 6 4
32.5
$7.59
Dean, D. 7 35
$8.01 x x
Gross Earnings = Number of Hours Worked x Rate per hour

6. Overtime Fair Labor Standards Act For most full-time workers… 0 hr
40 hour workweek
Work above and beyond 40 hours results in higher than normal pay:
1 1/2 or 1. 5 times the normal rate
“Time-and-a-half”
regular pay
OT pay
0 hr
40 hr

7. Example Compute the gross pay for this employee:
47 hr total hours
-40 hr regular hours
7 hr overtime hours
Compute the gross pay for this employee:
Regular Pay Rate: $9.18 per hour
Hours worked this week: 47 hours
Overtime, if applicable is paid at time-and-a-half.
Regular Pay + Overtime Pay = Gross Pay + =
$463.59
Regular Pay
$9.18/hr x 40 hours =
$367.20
Overtime Pay
1st Establish overtime rate of pay:
1.5 x $9.18/hr =
$13.77/hr
2nd compute overtime pay:
$13.77/hr x 7 hr =
$96.39

8. Payroll Ledger with overtime
Gross Earnings = Regular Pay + OT Pay
Gross Earnings (Petty, R.) = 40 hr x $ ($9.50 x 1.5 x 4.5 hrs)
Gross Earnings (Dean, D.) = 40 hr x $ ($8.85 x 1.5 x 3 hrs)
Employee
Hours Worked
Total Hours
Regular Rate
Gross Earnings S M T W Th F
Reg OT
Reg OT Total
Petty, R. -- 10
8.5 8 12 6 40
4.5
$9.50
Dean, D. 9 5 3
$8.85
Employee
Hours Worked
Total Hours
Regular Rate
Gross Earnings S M T W Th F
Reg OT
Reg OT Total
Petty, R. -- 10
8.5 8 12 6
$9.50
Dean, D. 9 5
$8.85
44.5 hrs
$380.00
$64.13
$441.13
43 hrs
$354.00
$39.83
$393.83

9. Practice Payroll Ledger
6.1 Exercises
#2 – 4
#7 – 9
#12, 13

10. Overtime Premium Method p. 184
Straight-time earnings
47 hr x $15.50
$728.50
(Total Hours x Regular Pay Rate
7 hr x $7.75
$54.25
+ ________________
Overtime Premium
(Overtime Hours x 1/2 Regular Pay Rate
Gross Earnings
$782.75
EXAMPLE
Katrina Ware’s regular pay rate is $15.50 per hour. This week she worked 40 regular hours and 7 overtime hours. Determine her gross earnings using the overtime premium method.

11. Practice Overtime Premium Method
5.1 Exercises
#17, 18

12. Overtime Per Workday (reference page 219)
CONCEPT
Overtime is paid for all work beyond 8 hours in any given day.
It is paid whether you reach 40 hours for the week or not.
regular pay
OT pay
EXAMPLE
On Monday, Kim works 13 hours. Her regular pay rate is $12.00 per hour. What is her pay on Monday if the company uses the “overtime for over 8 hrs of work per day” method?
0 hr
8 hr
Regular Pay: 8 hours at $12.00 per hour = $96.00
Overtime Pay:
1st Overtime Rate = $12.00 x 1.5 = $18.00 per hour
2nd Overtime Pay = $18.00 x 5 hrs = $90
Gross Earnings: $ $90.00 = $186.00

13. Overtime for over 8 hrs of work/day method example
Determine this worker’s pay if their regular pay rate is $9.90 per hour. M T W Th F
11.5 hr
6 hr
9.5 hr 8   S M T W Th F
Total
Hours
Reg.
--- 8 6
O.T.
3.5
1.5 36 5
Regular Pay
$9.90 x 36 hours
$356.40
OT Pay
1st $9.90 x 1.5 = $14.85
2nd $14.85 x 5 hours
$74.25
Gross Earnings
$ $74.25
$430.65

14. Practice OT Paid on Work > 8 hrs per day
6.1 Exercises
#22, 23

15. Section 1
Gross Earnings: Salaries

16. Salary Our 2nd method of computing Gross Pay
Fixed amount for each pay period.
Common Pay Periods
Monthly
Semimonthly
Biweekly
Weekly
12 paychecks per year
Twice each month (24 paychecks/year)
Every two weeks (26 paychecks/year)
52 paychecks per year

17. Salary Equivalents $1,580 $3,160 $37,920  12 checks  26 checks
Done in order to compare different salaried workers.
Weekly
Biweekly
Semimonthly
Monthly
Annual
$1,580
$729.23
$1,458.46
$3,160
$37,920
 12 checks
 26 checks
 52 checks
x 24 checks

18. Practice Salary Equivalents
6.1 Exercises
#30 – 33
Application Problems
#41, 43, 45
END of Section 1

19. Salary Computing Overtime
Under the Fair Labor Standards Act, requires that overtime be paid to certain salaried employees.
Overtime is computed at time-and-a-half

20. Salary Computing Overtime
A supervisor is paid $ per week and is expected to work 40-hour weeks.
How much should she be paid for a 46 hour week?
Determine hourly pay:
$692.31 =
$17.31 per hour
40 hr
Determine gross earnings:
$692.31
+ ($17.31 x 1.5 x 6 hr)
= $848.10

21. Practice Salary Overtime
5.1 Exercises
#35 – 37
Additional Practice #41, 43, 45

22. Section 2
Gross Earnings: Piecework and Commissions

23. Introduction Section 1 – Salaries and wages are “time rates”.
Pay depends upon actual time on the job
Section 2 – Methods of pay are “incentive rates”.
Pay depends upon actual performance on the job.
Piecework
Commission

24. Piecework Gross Earnings = $120
A piecework rate is the pay per item produced.
Gross Earnings = $120
Gross Earnings = $20/bicycle x 6 bicycles
Gross Earnings = Pay per Item x Number of Items
$20 per bicycle assembled

25. Gross Earnings = Pay per Item x Number of Items
EXAMPLE
Truck drivers are typically paid based on the number of miles driven.
The pay for a truck driver who logs 588 miles at a pay rate of $0.38/mile is:
Gross Earnings = Pay per Item x Number of Items
Gross Earnings = $223.44
Gross Earnings = $0.38 per mile x 588 miles

26. Practice Piecework
6.2 Exercises
#2 -4

27. Piecework overtime
Overtime rate is 1.5 times the regular rate per piece.
Regular Pay Rate
$20 per bicycle assembled
Overtime Pay Rate
$20/bicycle x 1.5 =
$30/bicycle

28. Practice Piecework - Overtime
Quick Check 4 (p. 229)
An assembler is paid $0.84 per each child care seat assembled.
In a week, 400 car seats were made on regular time and
138 were made on overtime.
Compute the gross earnings for this worker.
Regular Pay
400 x $0.84 = $336.00
Overtime piecework rate
$0.84 x 1.5 = $1.26 per seat
Overtime Pay
138 x $1.26 = $173.88
Gross Earnings = $ $173.88
Gross Earnings = $509.88

29. Practice Piecework with Overtime
6.2 Exercises #

30. Differential Piecework page 228
Quotas determine the minimum amount of work to be done.
Incentives (i.e. differential piecework) offer higher pay when the quota is exceeded.
Packaging Department Pay Scale
1 – 60 boxes $0.80 per box
61 – 80 boxes $0.90 per box
80 or more boxes $1.10 per box
Quota
Incentives
What is the pay for an employee who fills 84 boxes?

31. Packaging Department
1 – 60 boxes $0.80 per box
61 – 80 boxes $0.90 per box
81 or more boxes $1.10 per box 84 60 60 24
60 boxes x $0.80 = $48.00 20 20 4
20 boxes x $0.90 = $18.00
4 boxes x $1.10 = $4.40 4
Pay = $70.40

32. $1.10 per box 84
- 80 4
boxes x $1.10/box = $4.40 80 80
- 60
$0.90 per box 20
boxes x $0.90/box = $18.00 60
$0.80 per box
60 boxes x $0.80/box = $48.00
Gross Pay = $70.40
Pay Scale

33. Practice Differential Piecework
Quick Check 2 (p. 228)
Scooter Frame Company pays welders as follows:
1 – 150 frames $2.85 each
151 – 250 $3.20 each
251 or more $3.45 each
Find the gross earnings of a worker who welds 282 frames.
150
100
150 x $2.85 = $427.50
100 x $3.20 = $320.00
32 x $3.45 = $110.40
Gross Earnings = $857.90

34. Practice Differential Piecework
6.2 Exercises
#6 - 8

35. Piecework with Guaranteed Hourly Wage
Employee is paid either the minimum wage or the piecework earnings…whichever is higher.

36. Practice Piecework with Guaranteed Hourly Wage
Quick Check 3 (p. 229)
A cabinet door finisher is paid $14.70 per hour for an 8-hr day or $0.95 per cabinet door, whichever is higher.
Find the gross earnings for a worker who output was:
Monday: doors
Tuesday: doors
Wednesday: doors
Thursday: doors
Friday: doors
Minimum Daily Pay =
Minimum Daily Pay = $14.70 x 8 hr
Minimum Daily Pay = $14.70 x 8 hr = $117.60
Piecework Pay
106 x $0.95 = $100.70
127 x $0.95 = $120.65
152 x $0.95 = $144.40
120 x $0.95 = $114.00
138 x $0.95 = $131.10
$117.60
$117.60
Gross Earnings = $631.35

37. Practice Piecework with Guaranteed Hourly Wage
Quick Check 3 (p. 229)
A cabinet door finisher is paid $14.70 per hour for an 8-hr day or $0.95 per cabinet door, whichever is higher.
Minimum Daily Pay =
Minimum Daily Pay = $14.70 x 8 hr
Minimum Daily Pay = $14.70 x 8 hr = $117.60
Find the gross earnings for a worker who output was:
Monday: doors
Tuesday: doors
Wednesday: doors
Thursday: doors
Friday: doors
x $0.95 = $100.70
x $0.95 = $120.65
x $0.95 = $144.40
x $0.95 = $114.00
x $0.95 = $131.10
$117.60
$117.60
Gross Earnings = $631.35

38. Practice Piecework with Guaranteed Hourly Wage
6.2 Exercises #

39. Commission Commission is often used for salespeople.
Pay is usually expressed as a percent of sales.
A real estate agent earns a 6.5% commission rate on all residential homes sold.
Earn $6.50 for every $100 sold.

40. Commission Example
Compute the commission for a real estate agent who just sold a $142,500 home. Her commission rate is 5.25%.
Your commission is based upon your sales.
Part = Base x Rate
Commission = $142,500 x
Commission = $7,481.25

41. Commission Example (including Returns)
A sporting goods store salesperson had sales of $14,500 one month, with returns and allowances of $825. Determine her gross earnings if she is paid a 20% commission.
Net Sales =
$14,500 - $825
$13,675
Commission = $13,675 x 0.20
Commission = $2,735.00

42. Practice Commission
6.2 Exercises #

43. Commission Variable Commission Rate
Variable commission rate (sliding scale) is used by companies to keep their top salespeople.
Sales Rate
Up to $20,000 6%
$20,001 to $3o,000 8%
$30,001 and up 9%

44. Commission Variable Commission Rate
Quick Check 7 (p. 231)
What is the commission earned on sales of $38,400?
Sales Rate
Up to $20,000 6%
$20,001 to $3o,000 8%
$30,001 and up 9%

45. Sales Rate
Up to $20,000 6%
$20,001 to $3o,000 8%
$30,001 and up 9%
$38,400
20,000
20,000
$18,400
$20,000 x 6%= $1,200
10,000
10,000
$8,400
$10,000 x 8% = $800
$8,400 x 9%= $756
8,400
Gross Earnings = $2,756

46. Practice Commission (Variable or Sliding Scale)
6.2 Exercises #

47. Salary plus Commission
Salesperson is paid a fixed sum per pay period plus a commission on all sales.
Gross Earnings = Fixed Amount/period + Commission Amount

48. Salary plus Commission
Quick Check 8 (p. 231)
Salesperson is paid a salary of $290 a week, plus a 4% commission on all sales over $750.
Compute his gross earnings for a week where his total sales were $1870.
Gross Earnings = $290 + $44.80
Gross Earnings = $334.80
Gross Earnings = $290 + Commission
Gross Earnings = Salary + Commission
$ $750 = $1,120
$1,120 x 4% = $44.80

49. Practice Salary plus Commission
6.2 Exercises #
15,000
Sales Percent Commission
$0 - $15,000 No Commission (o%)
$15,001 - $25, %
$25,001 – up 1.1%
10,000
The animation on this slide gives you another (hopefully better) way to communicate the pay scale used in problems 28 through 30.

50. Problem 28.) Page 234
Sales Rate
Up to $15,000 0%
$15,001 to $25, %
$25,001 and up 1.1%
$36,300
15,000
15,000
$21,300
$15,000 x 0%= $0.00
10,000
10,000
$11,300
$10,000 x 0.9% = $90.00
Using the reworded pay scale from the previous slide on problem #28.) in the homework.
$11,300 x 1.1%= $124.30
11,300
Commission = $214.30
Gross Earnings = $452 + $214.30
Gross Earnings = $666.30

51. Ch 6 Payroll
Section 3 - Social Security, Medicare, and other Taxes

52. Introduction Deductions Social Security (FICA) Medicare
State Disability Insurance (SDI)

53. Social Security FICA – Federal Insurance Contributions Act
Tax rate is 6.2%
This rate is applied on all earnings up to $110,000 *
Both employee and employer pay into it.
Your employer matches your contribution dollar for dollar.
The cut-off point for FICA changes from one year to the next. Our textbook is going with $110,000 and that’s what we are to use for the homework problems.

54. Social Security
How much is paid into Social Security if your paycheck is $855.00?
Your contribution:
$855 x 6.2%
$855 x.062 = $53.01
Your employer’s contribution:
$53.01

55. Maximum Annual Contribution
What is the most you will pay into Social Security in one year?
Textbook (page 236): Pay on the first $110,000 only.
$110,000 x 6.2% =
$6,820

56. Approaching the FICA Threshold 7%
To date, a salesperson has earned $108,350.00
Her next paycheck is $3,795.00
How much will be withheld for Social Security?
110,000
110,000
1,650
$1,650 x 6.2%
$1,650 x .062 = $102.30
108,350
108,350

57. Medicare Medicare tax is 1.45% of all earnings.
The employer matches the employee’s contributions.

58. Self Employed No employer to match employee’s contribution…
Pay double the FICA rate and the Medicare rate:
12.4% FICA
2.9% Medicare
(2 x 6.2%)
(2 x 1.45%)

59. State Disability Insurance
For states that have SDI, a typical deduction is 1% of gross earnings on the first $31,800.
On a paycheck of $ the SDI deduction is:
$ x 1% = $5.68

60. Practice Social Security, Medicare, and Other Taxes
Exercises 6.3 (pages 239 – 240)
#4 – 6, 9 – 12, 14, 15, 18
#20, 21, 23, 26, 28

61. Ch 6 Payroll
Income Tax Withholding

62. Personal Income Tax Amount of Income Tax Paid:
Amount of Gross Earnings
Married or Single
Withholding Allowances (W-4)

63. W-4 Form Allowances: Married person with three children.5
Allowances:
Married person with three children.
Could claim 5 allowances
(one for the employee, spouse, and three children)

64. Gross Earnings
Amount of tax withheld is based on the gross earnings for the pay period.
Methods used to determine tax:
1.) Wage Bracket
2.) Percentage Method

65. Wage Bracket Method
Tables are made with weekly, biweekly, semimonthly, and daily pay periods.
There are different sets of tables for single and married tax payers.
Pages

68. Example Wage Bracket Method
Quick Check 2 (page 244)
Bob Martinez has monthly earnings of $
He is married and claims four withholding allowances. Find his withholding tax using the wage bracket method.
At Least But Less Than
2,800 2,840
Allowances (4)
Amount withheld is $29
Refer to the bottom table on page 243…

69. Practice Wage Bracket Method
Exercises 6.4 (page 251)
#3, 5, 7, 11

70. State Income Tax

71. State Income Tax Some states have no income tax…
…some have a flat tax rate (% of income)…
…and most issue tax tables to help determine tax owed.

72. Example Quick Check 6 (page 247)
An optometrist assistant working in Michigan has gross earnings of $3,225 for the month. Determine the state withholding tax (refer to the table on 247).
State withholding tax = $3,225 x 4.35%
$3,225 x
$140.29

73. Practice State Income Tax
Exercise 6.4 (page 251) #

74. Federal Withholding Tax
Percentage Method

75. One Withholding Allowance
Percentage Method
Advantages:
Don’t need the pages of tables
Lends itself to computer processing
Payroll Period
One Withholding Allowance
Weekly
$70.19
Biweekly
$140.38
Semimonthly
$152.08
Monthly
$304.17
Quarterly
$912.50
Semiannually
$1,825.00
Annually
$3,650.00
$2, (140.38) =
$ % x ( $940)
Gross pay = $2000 biweekly
Married with 2 allowances.
$150.29

76. Percentage Method Withholding Allowance
Payroll Period
One Withholding Allowance
Weekly
$70.19
Biweekly
$140.38
Semimonthly
$152.08
Monthly
$304.17
Quarterly
$912.50
Semiannually
$1,825.00
Annually
$3,650.00
Page 244

77. Page 245

78. Example Quick Check 3 (page 246)
Sadie Simms is married and claims three withholding allowances. Use the percentage method to find her withholding tax in a week where her earnings were $1263.
Payroll Period
One Withholding Allowance
Weekly
$70.19
Biweekly
$140.38
Semimonthly
$152.08
Monthly
$304.17
Quarterly
$912.50
Semiannually
$1,825.00
Annually
$3,650.00
$70.19 x 3 = $210.57
$ $ = $1,052.43
$1, is the taxable
earnings.

79. Table 1 Weekly Payroll Period (b) MARRIED person -x
Taxable earnings:
$1,052.43
Withholding tax =
$ % x $582.43
$ % x ($1, $470)
$ $87.36
Withholding tax = $104.06

80. Example Quick Check 4 (page 246)
Howard Martin has earnings of $5735 for the month. He is married and claims four withholding allowances. Use the percentage method to find his withholding tax.
Payroll Period
One Withholding Allowance
Weekly
$70.19
Biweekly
$140.38
Semimonthly
$152.08
Monthly
$304.17
Quarterly
$912.50
Semiannually
$1,825.00
Annually
$3,650.00
$ x 4 = $1,216.68
$ $1, = $4,518.32
$4, is the taxable
earnings.

81. Table 1 Monthly Payroll Period (b) MARRIED person -
If the amount of wages (after subtracting withholding allowances) is:
The amount of income tax to withhold is:
Not over $ $0
Over -
But Not Over -
of excess over -
$1313
$2038
10%
- $1313
$6304
$72.50 plus 15%
- $2038
$9844
$ plus 25%
- $6304 x
Taxable earnings: $
Withholding tax =
$ % x ($ $2038)
$ % x $
$ $372.05
Withholding tax = $444.55

82. Example Quick Check 5 (page 246)
Carol Dixon has biweekly earnings of $4350, is single, and claims two withholding allowances. Use the percentage method to find her withholding tax.
Payroll Period
One Withholding Allowance
Weekly
$70.19
Biweekly
$140.38
Semimonthly
$152.08
Monthly
$304.17
Quarterly
$912.50
Semiannually
$1,825.00
Annually
$3,650.00
$ x 2 = $280.76
$ $ = $
$ is the taxable
earnings.

83. Table 1 Biweekly Payroll Period (b) SINGLE person -
If the amount of wages (after subtracting withholding allowances) is:
The amount of income tax to withhold is:
Not over $ $0
Over -
But Not Over -
of excess over -
$276
$400
10%
- $276
$1,392
$12.40 plus 15%
- $400
$2,559
$ plus 25%
- $1,392
$6,677
$ plus 28%
- $2,559
$14,423
$1, plus 33%
- $6,677 x
Taxable earnings: $
Withholding tax =
$ % x $1,510.24
$ % x ($4, $2,559)
$ $422.87
Withholding tax = $875.82

84. Net Pay

85. Determine Net Pay after Deductions
Gross Earnings
– FICA tax
– Medicare tax
– Federal Withholding tax
– State Withholding tax
– Other Deductions
Net Pay

86. Practice
Exercise 6.4 (page 252)
#21 – 24, 27

87. Amount owed to the IRS
Money paid by companies

88. Amount owed to the IRS Example (page 253, #36) $265.36 $61.24 $4111.68
FICA Tax Collected from Employees
Medicare Tax Collected from Employees
Total Federal Withholding
Amount Due the IRS
Atlasta Ranch
$265.36
$61.24 $
2 x $265.36
2 x $61.24
$530.72 +
$122.48 + $ = $

89. Practice Amount owed to the IRS by a Company
Exercise 6.4 (page 253)
#37 , 40
END of UNIT
Practice Test
Graded Chapter Test

90. Wrap up
Determine Net Pay

91. Example – Determine Net Pay #42, page 223
$1147
-71.11
-16.63
-11.47
-39
-15
-100
Earnings of $1147 (weekly)
Single, 4 withholding allowances
Deductions:
FICA ______________
Medicare _______________
Federal withholding ___________________
State disability insurance ____________
State withholding __________
United Way($15.00), and savings bond($100)
$1147 x 6.2% = $71.11
$1147 x 1.45% = $16.63
$737.39
$156.40
$943
$1147 – (4 x $51)
$ % x ($943 – $645)
$1147 x 1% = $11.47
$1147 x 3.4% = $39

92. Practice Net Pay Exercise 5.4 (page 223) #42 – 44 *Practice Test
pages 229 – 230 (*DELETE) (substitute with new practice test which is handed-out in class)