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CH 14] Calculating Business 14-1

CHAPTER 14 NOTE TO INSTRUCTOR: Solutions

to Homework are in that section.

Avg. time for Students to read &
complete homework: 2.75 hrs.

Payrolls, Wages and Commissions

Objectives

Mastering the material in this chapter and you will be able to:

 Determine gross pay by using the conventional method and the overtime-premium
method.
 Compute gross pay on the straight piecework basis and a combination of time plus
piecework.
 Compute commissions earned.
 Use social security and federal income tax tables.

Business owners hire employees because they cannot do all of the work themselves, and
cannot handle all of their customers alone all of the time. This is especially true when their 14
business becomes popular with customers. Thus, they hire people to help meet the needs of
customers and grow the business. As the owner hires more people to facilitate customers
they also deal with payroll, the employee earnings. Employees are hired under a number of Payroll: A
constraints and pay methods such as hourly, hourly with overtime, hourly with a piece rate company's list of its
employees, but the
based on employee productivity. Employees are paid on a salary basis, commissions, salary term is commonly
plus commissions, or by the job; which means they are short time workers for specific tasks used to refer to the
or work that needs to be completed. total amount of
When working for someone else, the employer must also report employee earnings to money that a
government agencies that tax both the employees and employers for hiring and work company pays to its
completed. When it comes to FICA taxation (Social Security) the employee pays employees. A
approximately 6.2% and for Medicare the employee also pays this tax at about 1.45%. These company's records
of its employees'
taxes are deducted from their pay and amount to about a 7.65% reduction. The employer, for salaries and wages,
the privilege of hiring employees, must also contribute the same amount on behalf of the bonuses, and
employee, thus the total tax collected by government is 15.3%. The employer also has the withheld taxes. It is
responsibility to deduct a percentage from the employee’s wages for income taxes, which will the company's
be sent to the Federal Government, and to State Government and municipality if they levy a payroll department
tax on an employee’s wages. that calculates
These earnings and taxes collected (set aside) are summarized on reports for the taxing wages and prepares
payment to the
agencies along with a check to cover this cost to the business and its employees. People in employees.
business must keep good records for their reports, and with employees to make certain that
the laborer is properly and correctly compensated. People are hired
Some employees may have deductions made to their paychecks for savings and based on their
investments, retirement funds, union dues, and/or profit sharing. Each of these deductions potential and remain
lowers the Gross Pay the employee earns to a final Net Pay, as recorded on the employees with the firm based
check. on their
In today’s work world, much of this information is put into a computer program that performance.
tallies and creates reports for the employer. Recognizing that payrolls involve arithmetic

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