Managing your Personal Finances Unit 1 Calculating Gross

Managing your Personal Finances Unit 1: Calculating Gross Pay, Deductions and Net Pay Mr. Eleuteri C 114

Goals of the Day: Standard A-4: n Students will be able to calculate gross pay. n Students will be able to identify statutory and voluntary payroll deductions. n Students will be able to calculate net pay.

Definitions… Gross pay is the total amount due to an employee for a pay period. It would include regular, overtime, holiday, vacation and sick pay, as well as any commissions, tips or bonuses. Net pay is gross pay minus all statutory and voluntary deductions.

Basic Formula for Net Pay: Employee's Gross Pay minus Statutory payroll tax deductions minus Voluntary payroll deductions equals Net Pay (Net = Gross – Deductions)

Gross Pay – Hourly Wage n n n Hourly rate x number of hours worked Overtime – 1 ½ times hourly rate Holiday – 1 ½ or 2 times hourly rate Tips – usually 15 – 20% of bill Commission – percentage or fixed amount per item sold

Minimum Wage Federal Labor Standards Act – 1938 – 2009 n n n 1938 - 25¢ / hour 1939 - 30 ¢ / hour 1956 $1. 00 / hour 1974 $2. 00 / hour 1980 $3. 10 / hour 1991 $4. 25 / hour n n 1997 $5. 15 / hour 2007 $5. 85 / hour 2008 $6. 55 / hour 2009 $7. 25 / hour

Calculate Gross Pay - Hourly 1. Work 20 hours * Minimum wage Again, Gross = H * R

Calculate Gross Pay - Hourly 2. Work 15 regular hours and 5 overtime hours Regular Hours: H*R Overtime Hours: + H * (R * 1. 5) Gross Pay:

Calculate Gross Pay - Hourly 3. Work 24 regular hours at $8. 50/hour, 3 overtime hours and 5 holiday (2 x) hours Regular Hours: H*R Overtime Hours: + H * (R * 1. 5) Holiday Hours + H * (R * 2) Gross Pay:

Calculate Gross Pay - Hourly 4. Work 40 regular hours at minimum wage and earn 2% commission on sales. Sold $4, 000 worth of product during pay cycle Gross Salary = R * T + Commission Earned (Sales *Commission Rate)

Calculating Gross Pay Practice See Payroll Practice Handout- Part 1

Gross Pay – Annual Salary n n n Annual Salary / number of pays per year Overtime – rarely paid Holiday – rarely paid Tips – rarely applies Commission – percentage or fixed amount per item sold Bonus – based on company results and/or professional goals

No time clock, but…

Ways to think of Annual Salary : Number of Pays Per Year: Annually: 1 time per year Monthly: 12 times per year Twice a Month: 2 x 12 = 24 times per year Bi-weekly: 52 weeks/2= 26 times per year

Calculate Gross Pay - Salary 1. Salary is $48, 000 annually and you get paid twice a month

Calculate Gross Pay - Salary 2. Salary is $36, 000 annually with 3% commission on $150, 000 in sales and you get paid bi-weekly. (Assume your commission is earned evenly throughout the year. )

Calculating Gross Pay Practice See Payroll Practice Handout- Part 2

Deductions…

Statutory payroll tax deductions n n n n FICA Medicare FIT SIT City Wage Tax (Phila. , NY, etc. ) Worker’s Compensation Unemployment Insurance Family Leave Act

FICA (Social Security) n n Federal Insurance Contributions Act Began during the depression Part of Roosevelt’s New Deal Intent was to provide income for retirement, injury-induced disability, or congenital disability

FICA (Social Security) n Rate is 6. 2% of gross pay n n Up to a max salary of $113, 700 Employee and employer both pay 6. 2%

Medicare n n Social Security Act of 1965 Provides medical insurance for senior citizens and handicapped individuals Part of Lyndon B. Johnson’s Great Society Rate is 1. 45% of gross pay n n There is no annual cap Employee and employer both pay 1. 45%

Federal Income Tax 16 th Amendment In 1913, Wyoming ratified the 16 th Amendment, providing the three-quarter majority of states necessary to amend the Constitution. The 16 th Amendment gave Congress the authority to enact an income tax. That same year, the first Form 1040 appeared after Congress levied a 1 percent tax on net personal incomes above $3, 000 with a 6 percent surtax on incomes of more than $500, 000.

Federal Income Tax n n Payroll deduction is an estimate Actual tax due is computed annually n n Form 1040 for prior year filled out and mailed to federal government by April 15 th At that time, you pay remainder due or receive refund if overpaid

FIT – Progressive Tax § Based on Federal Tax Tables and Annual Salaries: up to $2, 200 0% $2, 200 to $11, 125 10% $11, 125 to $38, 450 15% $38, 450 to $90, 050 25% $90, 050 to $185, 450 28% $185, 450 to $400, 550 33% $400, 550 to $402, 200 35% $402, 200 and up 39. 6%

State Income Tax n n Payroll deduction is an estimate Actual tax due is computed annually n n Form NJ 1040 filled out and mailed to state government by April 15 th At that time, you pay remainder due or receive refund if overpaid

SIT – Progressive Tax n Based on NJ Tax Tables and Annual Salaries: up to $20, 000 1. 5% $20, 000 to $35, 000 2. 0% $35, 000 to $40, 000 3. 9% $40, 000 to $75, 000 6. 1% $75, 000 to $500, 000 7. 0% $500, 000 and up 9. 9%

Voluntary Payroll Deductions n n n Pension Savings Plans (401 k) Union Dues Medical/Dental Etc.

Calculating Deductions Calculate total deductions on a weekly gross salary of $650. 00 Use the following statutory payroll tax deductions: n n FICA – 6. 2% Medicare – 1. 45% FIT – 10% SIT – 1. 5% What is your total deductions? ______

Calculate Net Pay= Gross Pay – Total Deductions n Calculate Gross Pay n Calculate Statutory payroll tax deductions n n n FICA – 6. 2% Medicare – 1. 45% FIT – 10% SIT – 1. 5% Subtract Total Deductions from Gross Pay

Calculate Net Pay Gross Pay minus FICA minus Medicare minus FIT minus SIT equals Net Pay $400. 00 24. 80 5. 80 40. 00 6. 00 $323. 40

Quick estimate… Tax Rate FICA 6. 20% Medicare 1. 45% FIT 10. 00% SIT 1. 50% 19. 15% So Net Pay is roughly 80% of Gross Pay

Gross vs. Net Practice #1 n n Regular hours 20 Hourly rate $8. 00 per hour Gross Salary Rate FICA 6. 20% Medicare 1. 45% FIT 10. 00% SIT 1. 50% Net Pay

Gross vs. Net Practice #2 n n Hourly rate $8. 00 per hour Regular hours 24 Overtime hours 8 Holiday hours 4 (2 x) Gross Salary Rate FICA 6. 20% Medicare 1. 45% FIT 10. 00% SIT 1. 50% Net Pay