Gross and Net Pay PPT - Mt. Lebanon School District

Gross and Net Pay
Gross Pay
• There are a variety of ways that you may be paid
for a job.
• What are some of the different ways that you are
familiar with?
• Hourly
• Salary
• Commission
• Tips
Example 1
• Joan worked as a lifeguard this summer at the
local pool in order to earn some extra cash for
her senior trip next year.
• She was paid $7.25 per hour.
• If she worked approximately 40 hours in one
week, find her gross pay for a two-week pay
Example 2
Carl Edwards just accepted a job as an architect.
He is paid a salary of $1,560 a week.
How much gross pay does Carl earn in…
a year
a month
Would there be more than 1 way to calculate
this? Would 1 way be “more” accurate?
Example 3
• A first-year teacher at Lakeview School District
makes approximately $38,000 per year.
• If each teacher gets a paycheck twice a month
(semi-monthly), what is the gross pay for each
pay period?
• Overtime: The time a person works beyond the
“normal” working hours.
• Hourly employees receive OT.
• Salary employees do not.
• Typically OT = Time and a half or Double Time
• Example: $7.50 Regular Hourly Rate
• ($7.50)(1.5) = $11.25
• ($7.50)(2) = $15.00
Example 4
• Larry works at Walmart and earns $8.65/hour.
• His employer pays time-and-a-half for overtime
hours and double-time for holidays.
• What is Larry’s overtime pay rate?
• If Larry worked on Labor Day what would be his
pay rate?
Time is often recorded in quarters . . .
Example 5
• Carol Jones’ time is recorded in quarter
• She worked these hours last week:
• Monday, 8.25 hrs - Tuesday, 8.5 hrs
Wednesday, 9.25 hrs - Thursday, 8 hrs
Friday, 8.75 hrs
• She is paid based on a 40-hour work week
with time-and-a-half for overtime.
• If Carol’s regular-time pay rate is $10.75 per
hour, what gross wages did she earn last
Example 5
Suggested set up :
Carol’s total hours:
Carol’s overtime hours: Total Hrs. - 40
Carol’s regular pay:
Carol’s overtime pay:
Carol’s gross wages:
What is commission?
Commission – a form of incentive payment.
Typically what types of jobs earn commission?
This is a very common method of payment for
sales people.
• Straight Commission – only form of
compensation (pay) received.
Example 6
• Melvin is the top shoe salesman at “BIG FOOT”
shoe store. He is paid a straight commission of
7% on his total sales. If he sold $4,340 in shoe
sales in December, what was his commission?
Commission may be based on a
• What does the word “quota” mean to you?
• You may have heard it used this way . . . “You
must meet your quota.”
• A Goal (aka Quota) is the target that the
salesperson is expected to achieve in a certain
period for a specific performance measure.
Example 7
• Lisa is paid a weekly salary of $300 at Roomful
• She is paid a commission of 11% on all sales
above $4,250 for the week.
• What are her total earnings for a week in which
her furniture sales were $6,578?
Graduated Commission
• Commission rates that are variable and have
multiple rates.
• For example, if an employee sells $5,000 worth
of merchandise, he may earn 2% on the 1st
$3,000 and 2.5% on the 2nd $2,000.
• Why do you think employers would use
graduated commission?
Example 8
• Employees at Clothes R Us are paid a
commission of 2% on the first $10,000 of
monthly sales and 4% on any sales above that
• If Carol’s sales for a month were $8,592, what
commission did she earn?
Example 9
• Employees at Clothes R Us are paid a
commission of 2% on the first $10,000 of
monthly sales and 4% on any sales above that
• If Trevor’s sales for a month were $13,890, what
commission did he earn?
Rate of Commission
• Sometimes employers pay employees a different
% of commission on different items sold.
• Why might the employer do this?
• Why would the employee want to know what his
Rate of Commission is?
• Formula:
(Commission in $/Product sold in $)* 100
Example 10
• Greg works at Game Stop and sold a Wii system
and assorted games to a family for $370 and
received $9.25 in commission.
• What rate of commission did Greg earn on this
sale? Answer should be in % format.
• $9.25/$370 = .025 = 2.5%
Reminder 
• Test next Thursday – Gross and Net Pay
Net Pay
• If you are told that your yearly salary will be
$35,000, will you really pocket that much money
throughout the year? Why or why not?
• Gross Pay – Deductions = Net Pay
Federal tax withholdings
Social security
Union Dues
United Way Contributions
Health insurance
Social Security And Medicare Tax
• FICA – Federal Income Contributions Act
• Includes Social Security and Medicare
• Benefits include:
▫ Federal programs for retirees, the disabled, and
children of deceased workers.
▫ Medicare provides hospital insurance benefits.
Social Security And Medicare Tax
• FICA tax rates and the maximum wages on
which the taxes are charged are set by Congress
and may change from time to time.
• Currently, the overall tax rate is 5.65%
• Social security tax rate of 4.2% applied to a
maximum wage of $106,800
• Medicare tax rate of 1.45% applied to all wages
Example 11
• Note: If a person earns more than $106,800
per year from one job, the employer does not
deduct social security tax after the wages exceed
Find the total FICA tax on incomes of:
a.) $36,000
Example 11
• Remember: If a person earns more than
$106,800 per year from one job, the employer
does not deduct social security tax after the
wages exceed $106,800.
Find the total FICA tax on incomes of:
b.) $117,500
Example 12
• If you earn $650 a week, what is the social
security tax and Medicare tax that your company
would deduct from your weekly wages?
Example 13
• What is the Social Security tax and Medicare tax
deducted from an employee earning $9,250 a
month? Is there something to consider?
State and Local Income Taxes
• Some states and local municipalities tax a
percent of a resident’s wages.
• Pennsylvania’s Income tax is 3.07%
• These tax dollars are used for state services such
as police protection, maintenance of roads and
• Mt. Lebanon’s wage tax is 1.3%.
• .8% - Municipality .5% - School District
Example 14
• Allison has wages of $42,300. Allison is a
resident of Mt. Lebanon. If she doesn’t have any
deductions, what would her state and local taxes
Calculating Net Pay
• Gross Pay – Deductions = Net Pay
• Think back to the other deductions we mentioned
that might be taken out of gross pay.
• Look back to your first page: Deductions
Example 15
• Angela earned gross pay of $475 last week.
• Her deductions are as follows:
Federal withholding taxes of $48
Social security of 4.2%
Medicare taxes of 1.45%
State taxes of 2%
Health insurance premiums of $52.70
Union dues of $11.52
• Find Angela’s net pay.

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