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 period. 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? OT • 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 hours. • 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 week? 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: Commission • • • • 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 “quota” • 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 Express. • 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 amount. • 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 amount. • 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 Deductions • • • • • • • Federal tax withholdings Social security Medicare 401K Union Dues United Way Contributions Health insurance Social Security And Medicare Tax Deductions • 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 Deductions • 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 $106,800. 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 parks. • 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 be? 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.