Chapter 9 Payroll McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Unit Objectives #9 Payroll Learning Unit Objectives Calculating Various Types of Employees’ Gross Pay LU9.1 Define, compare, and contrast weekly, biweekly, semimonthly, and monthly pay periods Calculate gross pay with overtime on the basis of time Calculate gross pay for piecework, differential pay schedule, straight commission, variable commission scale and salary plus commission

Payroll Cycles

Payroll Cycles

Payroll Cycles

Payroll Cycles

Calculate Period Salary Earnings Annual salary of $55,000. Payroll is semimonthly. 55000 / 24 = 2291.67 Monthly salary of $4,000. Payroll is bi-weekly. 4000 x 12 / 26 =1846.15 Monthly salary of $3600. Payroll is weekly. 3600 x 12 / 52 = 830.77

Hourly Rate of Pay; Calculation of Overtime Gross pay = Hours Employee worked x Rate per hour Hourly overtime pay rate = Regular hourly pay rate x 1.5 Gross pay = Earnings for 40 hours + Earnings at time-and-a-half rate

Calculate Total Earnings--Hourly Jessica earns $10.50 per hour. During this weekly pay period she worked 46 hours. What is her gross pay? 10.50 x 40 + (10.50 x 1.5 x 6) = 420 + 94.50 = 514.50 Jason earns $13.25 per hour. During this bi-weekly pay period he worked 90 hours. What is his gross pay? 13.25 x 80 + (13.25 x 1.5 x 10) = 1060 + 198.75 = 1258.75

Straight Piece Rate Pay; Differential Pay Schedule Gross pay = Number of units produced x Various rates per unit Straight Piece Rate Pay Gross pay = Number of units produced x Rate per unit Units Amount produced per unit 1-50 $1.00 51-200 1.50 Over 200 1.75 Rob produced 225 widgets. He is paid $1.25 per widget. Calculate his gross pay (50 x $1.00) +(150 x $1.50)+(25 x $1.75) = $318.75 225 x $1.25 = $281.25

Calculate Earnings—Piece rate Bob paints widgets. For each widget he paints during the workday he receives 75 cents. During one week Bob painted 825 widgets. How much did Bob earn? 825 x .75 = 618.75 Carol is a widget tester. She is paid according to a schedule (p. 224). During one week, Carol tests 350 widgets. How much did Carol earn? 50 x .50 = 25.00 100 x .62 = 62.00 50 x .75 = 37.50 150 x 1.25 = 187.50 350 312.00

Straight Commission with Draw Larry is paid a straight commission of 8%. His computer net sales were $100,000. Larry’s draw was $750. What is his gross pay? Commission is a certain percentage of the amount a salesperson sells. Draw is an advance on the salesperson’s commission ($100,000 x .08) = $8,000 -750 $7,250 Commission amount = (Sales x rate) - Draw

Calculate Commission with Draw Marlo is a real estate agent who works on straight commission. During one month, Marlo sold $385,000 of real estate, and received a 2.5% commission. Marlo also receives an expense draw of $250 twice a month. What is the amount of net commissions she will receive. 385000 x .025 = 9625.00 – 500.00 = 9125.00

Variable Commission Scale Different commission rates for different levels of net sales Up to $25,000 5% Excess of $25,001 to $40,000 7% Over $40,001 8% Juanita’s net sales were $120,000. What is her gross pay based on the schedule? ($25,000 x .05) + ($15,000 x .07) + ($80,000 x .08) = $8,700

Calculate Commission—variable scale Up to $25,000 5% Excess of $25,001 to $40,000 7% Over $40,001 8% Ryan is a widget salesperson. During one month Ryan sold $66,500 of widgets. What is his gross earnings? $25000 x .05 = $1,250 $15000 x .07 = $1,050 $26500 x .08 = $ 2,120 $66,500 $4,420

Salary Plus Commission Gross Pay = Salary + Commission Chung receives a salary of $2,500 per month. He also receives a 5% commission for sales over $15,000. Last month’s sales were $75,000. Calculate Chung’s gross pay. $2,500 + ($60,000 x .05) = $5,500

Work drill problems 9-1 to 9-13, pps. 233-234 Assignment Review unit 9-1, pps. 221—225 Work drill problems 9-1 to 9-13, pps. 233-234

Review Problem #1 Kelly earns $3000 monthly salary for a 40 hour week. She also gets paid overtime for 12 hours she worked this week. Calculate Kelly’s gross earnings. 3000 * 12 / 52 = 692.31 692.31 / 40 = 17.31 regular rate 17.31 * 1.5 = 25.97 OT rate 25.97 * 12 = 311.64 OT earnings 692.31 + 311.64 = 1003.95

Review Problem 2 Tom earns a monthly salary of $2650. He is paid bi-weekly, and is entitled to 7 hours Overtime pay this period. Calculate his Gross earnings. 2650 * 12 = 31800 / 26 = 1223.08 regular 31800 / 52 / 40 = 15.29 * 1.5 = 22.94 OT rate 22.94 * 7 = 160.58 OT pay 1223.08 + 160.58 = 1383.66

Review Problem #3 Raquel is paid according to a differential pay schedule. During the week, she produces 387 gizmos. Calculate her weekly earnings using the following schedule: Units produced Amount per unit 1—100 .75 101—300 .90 301—500 1.25 100 * .75 = 75.00 200 * .90 = 180.00 87 * 1.25 = 108.75 387 363.75

Learning Unit Objectives #9 Payroll Learning Unit Objectives Computing Payroll Deductions for Employees’ Pay; Employers’ Responsibilities LU9.2 Prepare and explain the parts of a payroll register Explain and calculate federal and state unemployment taxes

TYPICAL PAYROLL DEDUCTIONS FEDERAL F.I.C.A.--Social Security & Medicare referred to as OASDI Old-Age, Survivors, Disability Insurance + Medical Insurance (HI) Social Security tax rate = 6.2% on employee + employer SS wage base is $80,400 (2004 actual 87,900) Medicare tax rate = 1.45 % on all earnings Federal Income tax based on amount earned and withholding allowances State Income Tax Other voluntary deductions

Payroll Register Rate Base Social Security 6.20% $80,400* Medicare 1.45 No Base

Calculate FICA Luke has earned a gross wage of $650.00 for the week. He is single and claims one withholding allowance. How much FICA tax will be withheld from his paycheck? Does Luke exceed the SS wage base? $650 * 52 = 33,800 –NO, he is under $80,400 SS: 650 x 6.2% = 40.30 Medicare: 650 x 1.45% = 9.43

Calculate FICA Amanda earns a monthly salary of $2500. She gets paid bi-weekly. How much will be withheld for FICA? Will Amanda exceed the SS wage base? 2500 x 12 = 30,000 –NO! 2500 x 12 / 26 = 1153.85 SS = 1153.85 x 6.2% = 71.54 Medicare = 1153.85 x 1.45% = 16.73

Calculate FICA Susan earns a monthly salary of $8000. How much will be withheld for FICA? Will Susan exceed the SS wage base? 8000 x 12 = 96,000 –YES! Some of her earnings will not be taxed. How much tax in October? 8000 x 10 = 80,000---all taxed SS = 8000 x 6.2% = 496 Medicare = 8000 x 1.45% = 116

Calculate FICA Susan earns a monthly salary of $8000. How much will be withheld for FICA in November? Will Susan exceed the SS wage base? When? 8000 x 12 = 96,000 –YES! Some of her earnings will not be taxed. How much tax in November? 8000 x 11 = 88,000 – she goes over 80,400 – previous 80,000 = 400 taxable SS = 400 x 6.2% = 24.80 Medicare = 8000 x 1.45% = 116

Calculate FICA Susan earns a monthly salary of $8000. How much will be withheld for FICA in December? Will Susan exceed the SS wage base? 8000 x 12 = 96,000 –YES! Some of her earnings will not be taxed. How much tax in December? 8000 x 11 = 88,000—she went over last month No more SS tax this year! SS = 0 Medicare = 8000 x 1.45% = 116

Calculate FICA Thomas receives an annual salary of $100,000. He gets paid semi-monthly. When does he exceed the SS base? 100,000 / 24 = 4166.67 gross per period 80,400 / 4166.67 = 19.29 He will exceed after the 19th period 4166.67 x 19 = 79166.73 How much FICA tax will be deducted on the paycheck he receives for the second half of October?

Thomas continued Taxable SS = base – ytd earnings SS tax = 1233.27 * 6.2% = 76.46 Medicare tax = 4166.67 * 1.45% = 60.42

Federal Income Tax Withholding (FIT) 1. Wage Bracket Method handbook p. 32-33 2. Percentage Method handbook p. 34

Fed. Income Tax Withholding Tax is determined based on pay frequency (w, bi, semi, m) marital status gross earnings number of withholding allowances based on W-4

Table 9.1 - Payroll Table (Partial)

Calculate FIT Brent has earned a gross wage of $1350.00 for the week. He is married and claims two withholding allowances. How much FIT tax will be withheld from his paycheck using Wage-bracket? $205

Table 9-3,9-4 Percentage method income tax withholding tables One Withholding Payroll Period Allowance Weekly $ 55.77 Bi weekly 111.54 Semimonthly 120.83 Monthly 241.67 Quarterly 725.00 SemiAnnually 1450.00 Daily or miscellaneous (each 11.15 day of the payroll period) Partial (b) MARRIED person - if the amount of wages (after subtracting The amount of income tax withholding allowances) is: to withhold is: Not over $124 $0 Over -- But not over -- of excess over -- $124 $960 15% $124 $960 $2,023 $125.40 plus 28% $960 $2,023 $3,292 $423.04 plus 31% $2,023 $3,292 $5,809 $816.43 plus 36% $3,292 $5,809 $1,722.55 plus 39.6% $5,809

Percentage Method 2 allowances; $2,000 weekly gross 1) Locate one withholding allowance and multiply by the number of allowances employee claims $55.77 x 2 = $111.54 $2,000.00 - 111.54 $1,888.46 2) Subtract step 1 from employees pay $1,888.46 - 960.00 $ 928.46 Tax $125.40 + .28 ($928.46) $125.40 + 259.97 = $385.37 3) In table 9.2 locate appropriate table and compute income tax

Calculate FIT Brent has earned a gross wage of $1350.00 for the week. He is married and claims two withholding allowances. How much FIT tax will be withheld from his paycheck? Using Wage-bracket $205 Using Percentage method Find allowance amount: 55.77 x 2 = 111.54 Taxable amount = 1350 – 111.54 = 1238.46 Find bracket: M—$960--$2023 subtract base: 1238.46 – 960.00 = 278.46 calculate: 278.46 x 28% = 77.97 add base tax: 125.40 + 77.97 = 203.37

Calculate FIT Sue has earned a gross amount of $3150 for the month. She is single and claims one withholding allowance. How much FIT tax will be withheld from her paycheck? Using Wage-bracket $467 Using Percentage method Find allowance amount: 241.67 x 1 = 241.67 Taxable amount = 3150 – 241.67 = 2908.33 Find bracket: M—$2392--$5183 subtract base: 2908.33 – 2392.00 = 516.33 calculate: 516.33 x 28% = 144.57 add base tax: 325.65 + 144.57 = 470.22

Employers’ UnemploymentTaxes Federal Unemployment Tax Act (FUTA)- 6.2% tax on the first $7,000 paid to employees as wages during the calendar year. Net rate is .8% (.008) *State Unemployment Tax Act (SUTA)- 5.4% tax on the first $7,000 paid to employees as wages during the calendar year *Can be credited against the 6.2% federal rate. Employee earns $9,000 in the first quarter. How much does the employer pay in FUTA & SUTA? SUTA = $7,000 x .054 = $378, FUTA = $7,000 x .008 = $56

Calculate Unemployment Tax Holly earns a monthly salary of $2,200. If she gets paid semi-monthly, how much FUTA and SUTA must the employer pay the first quarter? FUTA: 2200 x 3 = 6600 x .008 = 52.80 SUTA: 2200 x 3 = 6600 x 5.4% = 356.40 How much unemployment tax is owed for the 2nd quarter? Find remaining taxable amount: 7000 – 6600 = 400 FUTA: 7000 – 6600 = 400 x .008 = 3.20 SUTA: 400 x 5.4% = 21.60

Review Problem John earns $18.50 per hour. During the bi-weekly period he puts in 92 hours. He is married and has three allowances. Calculate gross pay, tax deductions and net pay. Gross = 1480 + 333 = 1813 SS tax = 1813 x 6.2% = 112.41 Medicare = 1813 x 1.45% = 29.29 FIT allowances= 3 x 111.54 = 334.62 Taxable earnings = 1813 – 334.62 = 1478.38 FIT = 1478.38 – 248 = 1230.38 x .15 = 184.56 Net pay = 1813 – 112.41 – 29.29 – 184.56 = 1486.74

Review pps. 226--231 Drill problems 14—19, p. 234 ASSIGNMENT Review pps. 226--231 Drill problems 14—19, p. 234 Work Word Problems #20--30