Wow My First Paycheck But where is all

Wow- My First Paycheck…. But where is all my money? Earning an Income

T HE M ANY F ORMS OF I NCOME Income is money earned from employment and investments Governments tax income and assets to create revenue that is used to provide public goods and services

M ONEY E ARNED FROM W ORK Income received from employment is earned income continued

M ONEY E ARNED FROM W ORK Earned income includes: WAGE (minimum wage for many unskilled and beginning workers) PIECEWORK INCOME (paid by job) SALARY COMMISSION TIP BONUS

THREE MOST COMMON METHODS OF PAYING EMPLOYEES Salary Hourly Wage & Overtime Pay Set payments throughout the year Paid based on the hours worked Commission Earn a percentage of the sales you make

SALARY Fixed amount of money paid to an employee for each pay period regardless of the hours worked. Salaries are a typical method of payment for managers, supervisors, and certain occupations, such as teaching.

HOURLY WAGE A specific amount of money paid per hour to an employee. Most temporary or part-time jobs pay per hour. Many full-time jobs, such as entrylevel retail jobs, also pay an hourly wage. Employers often use time cards or a time clock to keep track of employee hours.

COMPUTING HOURLY WAGE Hours Worked x Hourly Rate = Gross Pay 20 x $7. 25 = $145. 00

OVERTIME PAY Employees are usually paid extra when they work overtime, or more than 40 hours in a pay week. Overtime rate is usually 1. 5 times the employee’s regular hourly wage. Example if regular rate is $7. 40, the overtime rate would be $11. 10 ($7. 40 x 1. 5 - $11. 10).

COMPUTING GROSS PAY WITH OVERTIME Hourly Regular Rate x Hours $7. 40 x 40 Overtime + Rate + $11. 10 Overtime x x Hours 3 Gross = Earnings = Gross Earnings $296 + $33. 30 = $329. 30

COMMISSION An amount of money paid to an employee based on a percentage of the employee’s sales. The more an employee sells, the more he or she is paid. Way to motivate employees to increase their sales. Common to receive a salary plus commission.

COMPUTING GROSS PAY FOR COMMISSION Weekly salary of $150 plus a 5 percent commission on all merchandise sales: Sales for the week totaled $3, 725. Commission: $186. 25 ($3, 725 x 5 %) Gross Earnings: $336. 25 (salary, $150 + commission, $186. 25).

M ONEY E ARNED O UTSIDE W ORK Unearned income—income received from sources other than employment earnings from investments, sale of assets, and interest paid on savings and bonds Social Security and retirement account payments rent, inheritance, awards, gifts, alimony unemployment compensation

E MPLOYEE B ENEFITS Some of the most valuable forms of employee compensation are not monetary Employee benefits often include paid vacation, holiday, and sick leave life and health insurance employer-sponsored retirement savings plan

PAYROLL Payroll- Payroll is a list of employees and the payments due to each employee for a specific period of time.

MOST COMMON PAY PERIODS Pay Period- The specific period of time over which employees are paid. Weekly Biweekly (every two weeks) Semi-monthly (1 st & 15 th) or (15 th & 30 th) However, some companies pay their employees only once a month.

P AYROLL D EDUCTIONS Deduction can lower a paycheck by 20 percent or more Bonuses increase gross income continued

P AYROLL D EDUCTIONS Common payroll deductions: FICA (Federal Insurance Contributions Act): Social Security and Medicare Federal withholding tax State and city withholding taxes, if applicable Other benefits (insurance purchased through employers)

PAYCHECK AND STUB There are two parts to every paycheck: Paycheck Pay Stub

THE PAY STUB CONTAINS: The dates of the pay period. The rate of pay. The total hours worked. The gross pay (what you were paid) The deductions. The net pay. Often the YTD (Year to Date) totals

P AYROLL D EDUCTIONS Gross Income – Payroll Deductions = Net Income

COMPUTE NET PAY Calculate total gross earnings. Calculate all deductions. Subtract total deductions from gross earnings. Result is net earnings—what you take home.

FICA TAXES In 1935 the Federal Contributions Act (FICA) established the present Social Security System. FICA includes two types of taxes: Social Security tax—finances the federal programs that provide retirement, disability, and life insurance benefits. Medicare tax—finances part of the Medicare program.

EXAMPLES OF S OCIAL S ECURITY & M EDICARE B ENEFITS Social Security Benefits Old age and survivors benefit programs provide income to retired persons and the spouse and dependents of a deceased worker. The disability insurance program provides income to people with disabilities and their families. Medicare Benefits: The Medicare program provides health insurance benefits for people 65 or older, certain people with disabilities, and people of any age who have permanent kidney failure.

FICA DEDUCTIONS- 7. 65 % of Gross Pay • Social Security is 6. 2% of gross earnings. • Tax Break for 2011 - (4. 2% for 2011) • Taxes only on first 106, 800$ of income • Medicare is 1. 45% of gross earnings. • NO cap If John works 10 hrs at 10$/hour= 100 GROSS SS tax 100$ x. 062= $6. 20 deducted Medicare 100$ x. 0145 $1. 45 deducted Total FICA Deductions per $100 = $ 7. 65

SAMPLE PAY STUB

F EDERAL I NCOME T AX Tax is based on someone’s total income for a year. Government requires employers to withhold an amount of money from employee’s paychecks each pay period. This money is sent to the government and is applied to each employee’s federal income tax.

COMPUTING FEDERAL INCOME TAX: Employers use tax tables supplied by the Internal Revenue Service (IRS) to determine the amount of federal tax to withhold from each employee’s paycheck. Employers must know how many allowances each employee is claiming.

TAX TABLE

E MPLOYMENT F ORMS W-4 - Tells the employer how much money to withhold for federal income taxes

ALLOWANCES An allowance is an adjustment to the tax withheld from your paycheck. The more allowances you claim, the less tax will be withheld. It is based on your marital status and number of dependents. Single can claim 0 or 1.

THE W-4 FORM Total number of allowances

E MPLOYMENT F ORMS I-9 Form Employment Eligibility Form Show documentation

STATE AND LOCAL TAXES Many states and cities tax the earnings of people who live or work within their boundaries. Some states the tax is a percentage of earnings. Other states use a tax table similar to the IRS tax tables.

VOLUNTARY DEDUCTIONS: Deductions that are made because they were requested by the employer. Common voluntary deductions: Health and life insurance premiums. Union dues. Contributions to charities. Pensions and other retirement plans. Direct deposits to credit unions or bank.

PAYROLL REGISTER Payroll Register is a record that summarizes information about employee earnings and deductions for each pay period. Each Payroll Register has three main sections pertaining to money: 1. Earnings 2. Deductions 3. Net Pay

PAYROLL REGISTER Earnings - Deductions = Net Pay

B USINESS P ROFIT I NCOME Income earned by the self-employed Disadvantages of self-employment: Must arrange and pay for own employee benefits; can be costly Must pay entire Social Security and Medicare tax, rather than half the cost