Business Math Chapter 10 Payroll 1 10 1

Business Math Chapter 10: Payroll 1

10. 1 Gross Pay n Find the gross pay per paycheck based on salary. n Find the gross pay per weekly paycheck based on hourly wage. n Find the gross pay per paycheck based on piecework wage. n Find the gross pay per paycheck based on commission. 2 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 1. 3 Find the gross pay per paycheck based on salary Pay periods n Weekly: once a week or 52 times a year. n Biweekly: every two weeks or 26 times a year. n Semimonthly: twice a month or 24 times a year. n Monthly: once a month or 12 times a year. 3 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Find the gross earnings per pay period. n Ruth earns $36, 000 a year. If she is paid on a weekly basis, what is her gross pay per week? n Divide $36, 000 by 52 pay periods. n $692. 31 n What if she is paid on a semimonthly basis? n $1, 500. 00 4 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Try these examples. n Find the gross earnings for: Carolyn, who earns $15, 000 a year and is paid weekly. n $288. 46 n Martha, who earns $48, 000 a year and is paid biweekly. n $1, 846. 15 n Bill, who earns $35, 000 a year and is paid semimonthly. n $1, 458. 33 5 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Key Terms n Gross earnings (gross pay): the amount earned before deductions. n Net earnings (net pay/take-home pay): the amount of your paycheck. 6 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Key Terms n Hourly rate or hourly wage: the amount of pay per hour worked based on a standard 40 hour work week. n Overtime rate: rate of pay for hours worked that exceed 40 hours per week. n Time and a half: standard overtime rate that is 1½ (or 1. 5) times an hourly rate. 7 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Key Terms n Regular pay: earnings based on an hourly rate of pay. n Overtime pay: earnings based on overtime rate of pay. 8 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 1. 2 Find the gross pay per week based on hourly wages. 1. Find the regular pay by multiplying the number of hours (40 or less) by the hourly wage. 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. 3. Add the figures from steps 1 and 2. 9 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Here’s an example. n Theresa worked 45 hours last week. If her hourly rate is $10. 50 per hour, find her total gross earnings. n Multiply 40 x $10. 50 = $420. 00 n To calculate the overtime amount, multiply her hourly rate by 1. 5: $10. 50 x 1. 5 = $15. 75. n Multiply the overtime rate ($15. 75) x the number of overtime hours (5): $15. 75 x 5 = $78. 75. n Add the regular and overtime pay: $498. 75 10 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Try these examples. n n The regular hourly rate in the production department for these employees is $6. 50. Overtime is paid at 1. 5 n Find the weekly earnings for these employees: Marcus worked 48 hours. n $338 n Allison worked 44 hours. n n $299 11 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 1. 3 Find the gross pay per paycheck based on piecework. n Piecework rate: amount of pay for each acceptable item produced. n Straight piecework rate: piecework rate where the pay per piece is the same no matter how many items are produced. n Differential piece rate (escalating piece rate): piecework rate that increases as more items are produced. 12 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Here’s an example n Jorge assembles microchip boards. He is paid on a differential piecework basis. n Rates are as follows: ¨ From 1 -100 $1. 32 per board ¨ From 101 -300 $1. 42 per board ¨ 301 n and over $1. 58 per board If he assembles 317 boards how much will he earn? 13 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Jorge’s earnings n 100 x $1. 32 = $132. 00 n 101 -300 x $1. 42= $284. 00 n 17 x $1. 58 = $ 26. 86 n Total earnings: $442. 86 14 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Try this example. Jillian gets paid a differential piece rate for each shirt she sews. Consult the chart below and calculate her weekly earnings if she sewed 352 shirts last week. n From 1 -100: $0. 47 each n From 101 -300: $0. 60 each n 301 and above: $0. 70 each n What were her earnings? n $203. 40 15 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 1. 4 Find the gross pay per paycheck based on commission n Commission: earnings based on sales. n Straight commission: entire pay based on sales. n Salary plus commission: a set amount of pay plus an additional amount based on sales. n Commission rate: percent of sales that are eligible for a commission. n Quota: a minimum amount of sales that is required before a commission is applicable. 16 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Here’s an example. Shirley Garcia is a restaurant supplies salesperson and receives 5% of her total sales as commission. Her sales totaled $15, 000 during a given week. Find her gross earnings. n Use the formula: P = R x B to find her earnings. n P = 0. 05 x $15, 000 = $750. n Shirley’s earnings equal $750. 17 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Try this example. n n n Melanie Brooks works for a cosmetics company and earns $200 a week in salary plus 30% commission on all sales over $500. If 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 and the total is $425. 18 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 2 Payroll Deductions n Find federal tax withholding per paycheck using IRS tax tables. n Find federal tax withholding per paycheck using the IRS percentage method. n Find Social Security and Medicare tax per paycheck. n Find net earnings per paycheck. 19 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Key Terms n Income tax: local, state of federal tax paid on one’s income. n Federal tax withholding: the required amount to be withheld from a person’s pay to be paid to the federal government. n Tax-filing status: status based on whether the employee is married, single, or head of household; determines the tax rate. n W-4 form: required form to be held by the employer for determining the amount of federal tax to be withheld. 20 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 2. 1 Find federal tax withholding per paycheck using IRS tax tables. n 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 21 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Adjusted gross income n Allowable adjustments to the gross income, such as qualifying IRAs, tax-sheltered annuities, 401 Ks, or employee-sponsored childcare or medical plans. Tax-free or tax-deferred benefits 22 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Find the withholding tax Using the tax tables in your text, find the amount of tax to be withheld for the following employees: n Janice Hill, single, paid semimonthly, claiming one allowance, and earning $1, 700 per pay period. n n $236 Bill Melendez, married, paid weekly, claiming 4 allowances and earning $590 per pay period. n $20 23 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 2. 2 Find federal tax withholding per paycheck using the IRS percentage method. n Instead of using tax tables, many companies calculate federal tax withholding using tax rates. n In order to use tax rates, the employer must deduct from the employee’s adjusted gross income a tax-exempt amount based on the number of withholding allowances the employee claims. n The resulting amount is called the percentage method income. 24 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

How to find the withholding tax using the percentage method. n 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. n Multiply the number of withholding allowances claimed by the amount found in the previous step. n Subtract the exempt amount from the employee’s adjusted gross income for the pay period. 25 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Calculate the amount n 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. n Find the payroll period using figure 10 -4 in your text and multiply the withholding allowance amount by two. n Biweekly: $119. 23 x 2 = $238. 46 26 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Continue with the following steps. n Subtract the exempt amount ($238. 46) from the adjusted gross income ($3, 150. 00) and the result is $2, 911. 54. n Consult the tax tables shown in Figure 10 -5 in your text. n Table 2 a is the appropriate table for Dollie’s earnings: single and paid on a biweekly basis. 27 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Continue n Identify the appropriate line where her income falls: “over $2, 635 but less than $5, 719” n The tax is $511. 40 plus 28% in excess of $2, 635. n $2911. 54 (taxable income) - $2, 635 = $276. 54 x 28% = $77. 43 n Add $77. 43 + 511. 40 = $588. 83 n The amount of tax to be paid is $588. 83. 28 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 2. 3 Find Social Security and Medicare tax per paycheck n Find the amount of the earnings subject to be taxed; adjusted gross income less than or equal to $87, 000 annually. n Social Security taxes are currently capped at $87, 000. (This threshold can change. ) n Multiply the taxable amount by 6. 2% or 0. 062 to find the amount in Social Security taxes. 29 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Find the Medicare tax amount. n The Medicare tax amount is calculated at 1. 45% (or 0. 0145) of the adjusted gross income. n Unlike Social Security, there is no cap on income level. n Example: Joe’s gross pay is $1, 654. How much does he owe in Social Security and Medicare taxes? n SS = $102. 55 and Medicare = $23. 98 30 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Employers pay an equal amount n Employers also pay 6. 2% for Social Security and 1. 45% for Medicare of each employee’s gross pay. n A self-employed person must pay the equivalent of both amounts: 12. 4% in Social Security and 2. 9% in Medicare. 31 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 2. 4 Find the net earnings per paycheck. n Find the gross pay for the pay period. n Find the adjustments to income deductions, such as retirement or insurance. n Find the Social Security and Medicare tax based on the adjusted gross income. (continue on next slide) 32 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Find the net earnings. n Find the Federal withholding tax using one of the two methods. (tables or percentage) n Find other withholding taxes, such as state tax. n Find other deductions such as insurance or union dues. n Find the sum of all the deductions and subtract that amount from the gross pay. n The resulting amount is the take-home pay. 33 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Try this example. n Beth Cooley’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. n Find her net earnings if Beth is married and claims three withholding allowances. n See next slide for individual calculations. 34 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Beth’s take-home pay n Retirement fund = $588 x. 04 = $23. 52 n Withholding tax from Figure 10 -3 = $25 n Social Security = $588 x 0. 062 = $36. 46 n Medicare = $588 x 0. 0145 = $8. 53 n Insurance = $27. 48 n Total deductions = $120. 99 n Net earnings = $588 - $120. 99 = $467. 01 35 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 3 The Employer’s Payroll Taxes n Find an employer’s total deposit for withholding tax, Social Security tax and Medicare tax per pay period. n Find an employer’s SUTA and FUTA tax due for a quarter. 36 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 3. 1 Find the employer’s total deposit for withholding tax, Social Security tax and Medicare tax. n Find the total of withholding tax for all employees for the pay period. n Find the Social Security tax for all employees for the period and multiply by two to include the employer’s portion. n Find the Medicare tax for all employees for the period and multiply by two to include the employer’s portion. n Add the Social Security, Medicare and withholding tax amounts for total amount. 37 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Find the employer’s total deposit Employee Gross Earnings Withholding Social Security Medicare Net Earnings Plumlee $1, 050 $81. 09 $65. 10 $15. 23 $888. 58 Powell 2, 085 200. 65 129. 27 30. 23 1, 724. 85 Randle 1, 995 347. 47 123. 69 28. 93 1, 494. 91 Robinson 2, 089 413. 65 129. 52 30. 29 1, 515. 54 38 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Find the employer’s deposit Employee’s Contribution Employer’s Contribution Total Social Security $447. 58 $895. 16 Medicare $104. 68 $209. 36 Withholding $1, 042. 86 0 $1, 042. 86 Total Employer Deposit $2, 147. 38 39 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

10. 3. 2 Find the employer’s SUTA tax and FUTA tax for a quarter. n FUTA (Federal State Unemployment Tax Act) and SUTA (State Unemployment tax) are paid entirely by the employer and do not affect the employee’s paycheck. n 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%). n FUTA and SUTA are paid on a quarterly basis. 40 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

FUTA and SUTA n The amount a company pays in SUTA will depend on a company’s unemployment history. n If an employer pays 5. 4% in SUTA, then the company will pay 0. 8% in FUTA. n If the amount owed in FUTA in a given quarter is less than $100, then no payment is made that quarter and the amount is added to the following quarter. 41 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

Calculate the SUTA and FUTA n 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 n FUTA = $ 56 n 42 Cleaves/Hobbs: Business Math, 7 e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved