Business Math
Chapter 10: Payroll
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10.1 Gross Pay
Find the gross pay per paycheck based on
salary.
Find the gross pay per weekly paycheck based
on hourly wage.
Find the gross pay per paycheck based on
piecework wage.
Find the gross pay per paycheck based on
commission.
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10.1.3 Find the gross pay per
paycheck based on salary
Pay periods
Weekly: once a week or 52 times a year.
Biweekly: every two weeks or 26 times a
year.
Semimonthly: twice a month or 24 times a
year.
Monthly: once a month or 12 times a year.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Find the gross earnings
per pay period.
Ruth earns $36,000 a year. If she is paid on a
weekly basis, what is her gross pay per week?
Divide $36,000 by 52 pay periods.
$692.31
What if she is paid on a semimonthly basis?
$1,500.00
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Try these examples.
Find the gross earnings for:
Carolyn, who earns $15,000 a year and is paid
weekly.
$288.46
Martha, who earns $48,000 a year and is paid
biweekly.
$1,846.15
Bill, who earns $35,000 a year and is paid
semimonthly.
$1,458.33
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Key Terms
Gross earnings (gross pay): the amount
earned before deductions.
Net earnings (net pay/take-home pay): the
amount of your paycheck.
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Key Terms
Hourly rate or hourly wage: the amount of pay
per hour worked based on a standard 40 hour
work week.
Overtime rate: rate of pay for hours worked
that exceed 40 hours per week.
Time and a half: standard overtime rate that is
1 (or 1.5) times an hourly rate.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Key Terms
Regular pay: earnings based on an hourly
rate of pay.
Overtime pay: earnings based on overtime
rate of pay.
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10.1.2 Find the gross pay per week
based on hourly wages.
1.
Find the regular pay by multiplying the number
of hours (40 or less) by the hourly wage.
2.
Find the overtime pay by multiplying the hourly
rate by the overtime rate (usually 1.5) and then
multiply that rate by the number of hours that
exceed 40.
3.
Add the figures from steps 1 and 2.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Heres an example.
Theresa worked 45 hours last week. If her
hourly rate is $10.50 per hour, find her total
gross earnings.
Multiply 40 x $10.50 = $420.00
To calculate the overtime amount, multiply her
hourly rate by 1.5: $10.50 x 1.5 = $15.75.
Multiply the overtime rate ($15.75) x the number
of overtime hours (5): $15.75 x 5 = $78.75.
Add the regular and overtime pay: $498.75
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Try these examples.
The regular hourly rate in the production
department for these employees is $6.50.
Overtime is paid at 1.5
Find the weekly earnings for these employees:
Marcus worked 48 hours.
$338
Allison worked 44 hours.
$299
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.1.3 Find the gross pay per
paycheck based on piecework.
Piecework rate: amount of pay for each
acceptable item produced.
Straight piecework rate: piecework rate where
the pay per piece is the same no matter how
many items are produced.
Differential piece rate (escalating piece rate):
piecework rate that increases as more items are
produced.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Heres an example
Jorge assembles microchip boards. He is paid
on a differential piecework basis.
Rates are as follows:
From
1-100
$1.32 per board
From
101-300
$1.42 per board
301
and over
$1.58 per board
If he assembles 317 boards how much will he
earn?
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Jorges earnings
100 x $1.32 =
$132.00
101-300 x $1.42=
$284.00
17 x $1.58 =
$ 26.86
Total earnings:
$442.86
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Try this example.
Jillian gets paid a differential piece rate for each
shirt she sews. Consult the chart below and
calculate her weekly earnings if she sewed 352
shirts last week.
From 1-100:
$0.47 each
From 101-300:
$0.60 each
301 and above:
$0.70 each
What were her earnings?
$203.40
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.1.4 Find the gross pay per
paycheck based on commission
Commission: earnings based on sales.
Straight commission: entire pay based on sales.
Salary plus commission: a set amount of pay plus an
additional amount based on sales.
Commission rate: percent of sales that are eligible for
a commission.
Quota: a minimum amount of sales that is required
before a commission is applicable.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Heres an example.
Shirley Garcia is a restaurant supplies salesperson
and receives 5% of her total sales as
commission. Her sales totaled $15,000 during a
given week. Find her gross earnings.
Use the formula: P = R x B to find her earnings.
P = 0.05 x $15,000 = $750.
Shirleys earnings equal $750.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Try this example.
Melanie Brooks works for a cosmetics company
and earns $200 a week in salary plus 30%
commission on all sales over $500. If she had
sales of $1,250 last week, how much were her
total earnings?
Her salary would be $200 plus any applicable
commission.
The commission would be calculated at 30% on
$750 in sales or $225. Add this amount to her
base salary and the total is $425.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.2 Payroll Deductions
Find federal tax withholding per paycheck using
IRS tax tables.
Find federal tax withholding per paycheck using
the IRS percentage method.
Find Social Security and Medicare tax per
paycheck.
Find net earnings per paycheck.
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Key Terms
Income tax: local, state of federal tax paid on
ones income.
Federal tax withholding: the required amount to
be withheld from a persons pay to be paid to the
federal government.
Tax-filing status: status based on whether the
employee is married, single, or head of
household; determines the tax rate.
W-4 form: required form to be held by the
employer for determining the amount of federal
tax to be withheld.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.2.1 Find federal tax withholding
per paycheck using IRS tax tables.
To calculate federal withholding tax using the IRS tax
tables, an employer must know:
The
employees filing status (single, married or head
of household)
The
number of withholding allowances the
employee claims
The
type of pay period
The
employees adjusted gross income
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Adjusted gross income
Allowable adjustments to the gross income, such
as qualifying IRAs, tax-sheltered annuities,
401Ks, or employee-sponsored childcare or
medical plans.
Tax-free or tax-deferred benefits
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Find the withholding tax
Using the tax tables in your text, find the amount
of tax to be withheld for the following employees:
Janice Hill, single, paid semimonthly, claiming
one allowance, and earning $1,700 per pay
period.
$236
Bill Melendez, married, paid weekly, claiming 4
allowances and earning $590 per pay period.
$20
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.2.2 Find federal tax withholding per
paycheck using the IRS percentage method.
Instead of using tax tables, many companies
calculate federal tax withholding using tax rates.
In order to use tax rates, the employer must deduct
from the employees adjusted gross income a taxexempt amount based on the number of
withholding allowances the employee claims.
The resulting amount is called the percentage
method income.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
How to find the withholding tax
using the percentage method.
Find the exempt-per-allowance amount from the
withholding allowance table, identifying the amount
exempt for one withholding allowance according to the
type of pay period.
Multiply the number of withholding allowances claimed
by the amount found in the previous step.
Subtract the exempt amount from the employees
adjusted gross income for the pay period.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Calculate the amount
Dollie Calloways biweekly gross earnings are
$3,150. She is single, has no adjustments to
income
and
claims
two
withholding
allowances on her W-4 form.
Find the payroll period using figure 10-4 in your
text and multiply the withholding allowance
amount by two.
Biweekly: $119.23 x 2 = $238.46
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Continue with the following steps.
Subtract the exempt amount ($238.46) from the
adjusted gross income ($3,150.00) and the
result is $2,911.54.
Consult the tax tables shown in Figure 10-5 in
your text.
Table 2a is the appropriate table for Dollies
earnings: single and paid on a biweekly basis.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Continue
Identify the appropriate line where her income
falls: over $2,635 but less than $5,719
The tax is $511.40 plus 28% in excess of
$2,635.
$2911.54 (taxable income) - $2,635 =
$276.54 x 28% = $77.43
Add $77.43 + 511.40 = $588.83
The amount of tax to be paid is $588.83.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.2.3 Find Social Security and
Medicare tax per paycheck
Find the amount of the earnings subject to be
taxed; adjusted gross income less than or equal
to $87,000 annually.
Social Security taxes are currently capped at
$87,000. (This threshold can change.)
Multiply the taxable amount by 6.2% or 0.062 to
find the amount in Social Security taxes.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Find the Medicare tax amount.
The Medicare tax amount is calculated at 1.45%
(or 0.0145) of the adjusted gross income.
Unlike Social Security, there is no cap on income
level.
Example: Joes gross pay is $1,654. How much
does he owe in Social Security and Medicare
taxes?
SS = $102.55 and Medicare = $23.98
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Employers pay an equal amount
Employers also pay 6.2% for Social Security and
1.45% for Medicare of each employees gross
pay.
A self-employed person must pay the
equivalent of both amounts: 12.4% in Social
Security and 2.9% in Medicare.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.2.4 Find the net earnings
per paycheck.
Find the gross pay for the pay period.
Find the adjustments to income deductions,
such as retirement or insurance.
Find the Social Security and Medicare tax
based on the adjusted gross income.
(continue on next slide)
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Find the net earnings.
Find the Federal withholding tax using one of the
two methods. (tables or percentage)
Find other withholding taxes, such as state tax.
Find other deductions such as insurance or
union dues.
Find the sum of all the deductions and subtract
that amount from the gross pay.
The resulting amount is the take-home pay.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Try this example.
Beth Cooleys gross weekly earnings are $588.
Four percent of her gross earnings is deducted
for her nonexempt retirement fund and $27.48 is
deducted for insurance.
Find her net earnings if Beth is married and
claims three withholding allowances.
See next slide for individual calculations.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Beths take-home pay
Retirement fund = $588 x .04 = $23.52
Withholding tax from Figure 10-3 = $25
Social Security = $588 x 0.062 = $36.46
Medicare = $588 x 0.0145 = $8.53
Insurance = $27.48
Total deductions = $120.99
Net earnings = $588 - $120.99 = $467.01
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.3 The Employers Payroll
Taxes
Find an employers total deposit for withholding
tax, Social Security tax and Medicare tax per
pay period.
Find an employers SUTA and FUTA tax due for
a quarter.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.3.1 Find the employers total deposit for
withholding tax, Social Security tax and
Medicare tax.
Find the total of withholding tax for all employees for
the pay period.
Find the Social Security tax for all employees for the
period and multiply by two to include the employers
portion.
Find the Medicare tax for all employees for the period
and multiply by two to include the employers portion.
Add the Social Security, Medicare and withholding tax
amounts for total amount.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Find the employers total deposit
Employee
Gross
Earnings
Withholding
Social
Security
Medicare
Net
Earnings
Plumlee
$1,050
$81.09
$65.10
$15.23
$888.58
Powell
2,085
200.65
129.27
30.23
1,724.85
Randle
1,995
347.47
123.69
28.93
1,494.91
Robinson
2,089
413.65
129.52
30.29
1,515.54
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Find the employers deposit
Employees
Contribution
Employers
Contribution
Total
Social
Security
$447.58
$447.58
$895.16
Medicare
$104.68
$104.68
$209.36
Withholding
$1,042.86
$1,042.86
Total Employer Deposit
$2,147.38
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
10.3.2 Find the employers SUTA
tax and FUTA tax for a quarter.
FUTA (Federal State Unemployment Tax Act) and
SUTA (State Unemployment tax) are paid entirely
by the employer and do not affect the employees
paycheck.
FUTA is currently 6.2% of the first $7,000 earned
by an employee in a year minus any amount the
employer has paid in SUTA (up to 5.4%).
FUTA and SUTA are paid on a quarterly basis.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
FUTA and SUTA
The amount a company pays in SUTA will
depend on a companys unemployment history.
If an employer pays 5.4% in SUTA, then the
company will pay 0.8% in FUTA.
If the amount owed in FUTA in a given quarter is
less than $100, then no payment is made that
quarter and the amount is added to the following
quarter.
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
Calculate the SUTA and FUTA
George earns $40,000 a year. If the SUTA rate
is 5.4%, calculate the amount of SUTA that
Georges employer will pay on his behalf for the
first quarter. Then, calculate the amount of
FUTA. [Remember, it is calculated only on the
first $7,000 in income.]
SUTA = $378
FUTA = $ 56
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Cleaves/Hobbs: Business Math, 7e Copyright 2005 by Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved
