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

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

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

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

THREE MOST COMMON METHODS OF PAYING EMPLOYEES  Salary  Set payments throughout the year  Hourly Wage & Overtime Pay  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 entry- level 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 $11.10).

COMPUTING GROSS PAY WITH OVERTIME Hourly Regular OvertimeOvertime Gross Ratex Hours + Rate x Hours = Earnings $7.40 x 40 + $11.10 x 3 = 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: $ ($3,725 x 5 %) Gross Earnings: $ (salary, $150 + commission, $186.25).

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

E MPLOYEE B ENEFITS SSome of the most valuable forms of employee compensation are not monetary EEmployee benefits often include ppaid vacation, holiday, and sick leave llife and health insurance e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 DDeduction can lower a paycheck by 20 percent or more BBonuses increase gross income continued

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

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

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

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 FICA DEDUCTIONS % of Gross Pay Social Security is 6.2% of gross earnings. Tax Break for (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:  Health and life insurance premiums.  Union dues.  Contributions to charities.  Pensions and other retirement plans.  Direct deposits to credit unions or bank. Deductions that are made because they were requested by the employer. Common voluntary deductions:

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 IIncome earned by the self-employed DDisadvantages of self-employment: MMust arrange and pay for own employee benefits; can be costly MMust pay entire Social Security and Medicare tax, rather than half the cost