Page 128 - CalcBus_Flipbook

14-2 Payrolls, Wages and Commissions CH 14]

calculations, it is essential that an understanding of how these calculations are made is
developed. In this regard, the employee can verify the accuracy of this paycheck and taxes
paid. Employers will use this information to determine where labor costs are being utilized.
Salary: A fixed regular
payment, typically paid GROSS PAY
on a monthly or
semimonthly basis but Gross pay is the total amount of earnings for a given period of time which can be daily,
often expressed as an weekly, monthly, or annually. Earnings may be paid on an hourly basis at a fixed rate per
annual sum, made by hour, hourly basis plus piece work, salary (typically monthly) as $4,500 per month, salary
an employer to an against commissions earned, salary plus commissions, and commissions (3% of sales made
employee, especially a – as in real estate commissions).
professional or white- Gross pay is based on (1) passage of time, hours on the job, (2) hours on the job and
collar worker. amount of work completed such as how many boxes of oranges are packed, (3) hours on the

Wages: A fixed job and commission on sales, (4) salary per week or month plus commissions on sales, (5)
regular payment, guaranteed salary less commissions that cover salary guarantee, and commissions over
typically paid on a exceeding any salary guarantee, (6) dollar value of the sales which is straight commission,
daily or weekly basis, such as a real estate agent earning 1.4% commission on a $350,000 sale ( $350,000 x 0.014
made by an employer = $4,900). With commission sales, if nothing is sold then no income is earned. (7) Or some
to an employee, combination of those described in (1) though (6). The type of pay structure used is
especially to a manual dependent on the employees’ job description and the nature of the employer’s business.
or unskilled worker.
In all of these, precise arithmetic calculations are required.
Gross Pay: Also
termed Gross Salary Measuring Time
and gross wage. Gross pay for hourly employees is based on the time worked, hours, as required for the
Describes all of the job. The difference between their arrival time and the time of their leaving work determines
money earned while
working at the job for a the hours worked. Salary employees don’t generally work a specific set of hours, and
specified period of typically work longer hours, filling rolls in administrative and managerial positions. The
time, and is the total salaried employee is typically paid a set dollar amount per month and when calculated on a
amount earned before per hour basis are paid at a higher rate; but their pay is not predicated on the hours they
deductions, such as work. Commission sales are not dependent on hours worked rather the total dollar value of
taxes, are deducted. the sales.
Hourly employees generally work 40 hours per week, which is full time employment.
Net Pay: Also termed
net salary and net They receive payment for the number of hours on the job. When working overtime, the
wage. Describes the hourly rate is 1½ times the regular rate for all hours over 40 worked per week. Example, an
amount of money as employee earns $20 per hour for 40 hours per week; this totals $800 regular gross pay per
take-home pay after week. For overtime hours, which is over any 8 hours work per day and exceeds 40 hours in
the all deductions are the week, they are compensated at 1½ times the hourly wage of $20 per hour or (1½ x $20
accounted for and =) $30 per hour. If the employee puts in 5 hours of overtime then their overtime wage is an
deducted from the
earned gross pay. additional (5 x $30 =) $150 gross pay, and their total wage for their work week is ($800
regular gross pay + $150 overtime gross pay =) $950 gross pay.
From this discussion, it is understood that there are two methods of compensation for
hourly play: The conventional hour rate and the overtime hourly rate. These are added
together to calculate the employee’s total gross wage.

Example: Howard Brown worked 43 hours during the past week. His regular hourly
rate of pay is $15.50. Calculate his gross pay for the week.

Solution algorithm (1): Regular earnings = 40hrs x $15.50 = $620.00
George Washington (Overtime rate = 1.5 x $15.50 = $23.25)
kept his farm accounts Overtime earnings = 3hrs x $23.25 = + $69.75
— carefully and Gross pay = $620.00 + $69.75 = $689.75
accurately.
Encourage thrift and
build up your Solution algorithm (2): Regular earnings = 40hrs x $15.50 = $620.00
financial standing Overtime earnings = 3hrs x 1.5 x $15.50 = + $69.75
through savings and Gross pay = $620.00 + $69.75 = $689.75
investments. George
Washington was better It is important for Employers to keep careful and accurate records just as George
able to serve his Washington kept his records, carefully and accurately, such that calculations for employee
country because he pay is scrupulously accurate. Failing this standard harms employee morale which in turn
was financially
independent. does affect productivity. It is also an issue of honesty and business integrity.

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