Double the Salary An employee starting a new job has the option to choose how he is paid for the first twenty days of work. He works five days a week, for four full weeks. Make the best choice for the new employee after comparing the two options. Payment Option 1: For the first twenty days of work, the new employee will be paid $500 a day. Payment Option 2: The pay will be $0.01 for the first day. Each day the pay will double. So, it will be $0.02 the second day, $0.04 the third day, $0.08 the fourth day, etc. By the end of twenty days, how much money will the employee have made?

Double the Salary Payment Option 1: Payment Option 2: $500.00 a day * 20 days = $10,000 Payment Option 2: Day 1 $ 0.01 Day 11 10.24 Day 2 .02 Day 12 20.48 Day 3 .04 Day 13 40.96 Day 4 .08 Day 14 81.92 Day 5 .16 Day 15 163.84 Day 6 .32 Day 16 327.68 Day 7 .64 Day 17 655.36 Day 8 1.28 Day 18 1310.72 Day 9 2.56 Day 19 2621.44 Day 10 5.12 Day 20 5242.88 Total: $10,485.75

Solution Payment Option 1: $500.00 a day * 20 days = $10,000.00 This is a better choice for the new employee as he will be making $10,485.75 This is $485.75 more than if he would have chosen Payment Option 1

An Earthlings Guide to Understanding Paychecks Family Economics & Financial Education Planet Paycheck An Earthlings Guide to Understanding Paychecks

Planet Paycheck Navigation Welcome to Planet Paycheck! While visiting Planet Paycheck the vast world of paychecks will be explored!

First Job! Miss Patty Paycheck has just received her first paycheck from her new job! But, the paycheck amount seems a little lower than she had figured. How could that be? Taxes – Required charges of citizens by local, state, and federal governments Taxes are deducted from all employees paychecks Used to provide public goods and services Roads, police, schools, governmental agencies, fire and emergency services

Starting a New Job To receive a paycheck, an employee must: Complete a Form W-4 Employee’s Withholding Allowance Certificate Determines the amount of money withheld for taxes

Starting a New Job Complete a Form I-9 Used to prove the identity of people and avoid hiring non United States citizens Must provide at least 2 of the following passport driver’s license U.S. military card Social Security card birth certificate

Starting A New Job Form W-2 (Wage and Tax Statement) States the amount of money earned and taxes paid throughout the previous year Used to file income taxes by April 15th Individuals may be exempt from filing federal withholdings if they make less than a certain amount per year

Methods for Paying Employees Paycheck Paper check with stub Least secure payment method because the employee is responsible for handling the paycheck 2. Direct Deposit Employers directly deposit employee’s paycheck into the authorized employee’s bank account Payroll Card A payroll card electronically carries the balance of the employee’s net income

Payment Method Pros and Cons Paycheck Pros: Employee controls when the check is deposited Cons: Least secure, employee responsible for getting it to the bank Direct Deposit No direct handling of check Employee knows exactly when he/she will be paid Payroll card Pros: Wages automatically loaded onto a card Cons May charge fees for use of the card

Reading A Paycheck Stub Items on a paycheck stub include: Personal Information -The employee’s full name, address, and social security number or employee identification number Pay Period -The length of time for which an employee’s wages are calculated Most businesses pay employees either weekly, bi-weekly, or monthly

Reading A Paycheck Stub Gross Income– The total amount of money earned before payroll withholdings If a person earns an hourly wage, gross income is calculated by multiplying the number of hours worked by the wage

What is the Gross Income? If Miss Patty Paycheck worked at Terrific Tacos for $6.00/hour for 15 hours a week what will her gross income be? # hours worked x wage = gross income 15 hours x $6.00/hr = $90.00/week What is Miss Patty Paycheck’s gross income for a two week pay period? 30 hours x $6.00/hr = $180.00 for 2 weeks

Reading A Paycheck Stub Payroll Withholdings – The amount of money subtracted from the gross income for taxes. Typically about 30% of your paycheck! Withholding Tax – The amount required by law for employers to withhold from earned wages to pay taxes FICA-Federal Insurance Contribution Act Fed OASDI/EE (Federal Old Age Survivors Disability Insurance Employee Employment Tax) or Social Security - helps provide retirement income for the elderly and pays disability benefits Fed MED/EE (Federal Medicare Employee Employment Tax) or Medicare - health care program for the elderly and disabled

Reading A Paycheck Stub Net Income– The amount left after all payroll deductions have been taken from the gross income Net income is also referred to as “take home” pay

Miss Patty Paycheck’s Paycheck Stub Miss Patty Paycheck’s paycheck includes: Gross Income $180.00 Payroll Withholdings: Federal Withholding Tax $14.10 State Withholding Tax $5.45 FICA $13.77 What is her Net Income? Gross Income– Payroll Withholdings = Net Income $180.00 – ($14.10 + $5.45 + $13.77) = $146.68

Reading A Paycheck Stub Year-to-Date- Totals all of the deductions which have been withheld from an individual’s paycheck from January 1 to the last day of the pay period indicated on the paycheck stub

Sample Paycheck Stub Terrific Tacos Employee Paycheck, Patty SSN/Employee Identification Number 201-92-4856 Check # 164 Check Amount (net income) $146.68 Employee Address 293 Michael Grove Billings, MT 59102   Pay Type- Gross Income Deductions Current Year-to-date  $180.00 Federal Withholding State Withholding FICA $14.10 $5.45 $13.77 $296.10 $130.80 $330.48 Totals $33.32 $757.38 Pay Period 6/11/2007-6/25/2007

Remember to Review It is important to review each paycheck stub to identify any possible mistakes! If a mistake is found, contact the employer for clarification

Thanks for Visiting Thank you for visiting planet paycheck. Good luck with all of your future paycheck journeys!