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Chapter 9Chapter 9

PayrollPayroll

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

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• 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#9#9Learning Unit Objectives

Calculating Various Types of Employees’ Gross Pay

LU9.1LU9.1

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Payroll Cycles

Salary Paid Period Earning per period

Weekly 52 times (once a week) ($40,000/52) $769.23

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Payroll Cycles

Salary Paid Period Earning per period

Weekly 52 times (once a week) ($40,000/52) $769.23

Biweekly 26 times (every two weeks)($40,000/26) $1,538.46

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Payroll Cycles

Salary Paid Period Earning per period

Weekly 52 times (once a week) ($40,000/52) $769.23

Biweekly 26 times (every two weeks)($40,000/26) $1,538.46

Semimonthly 24 times (twice a month) ($40,000/24) $1,666.67

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Payroll Cycles

Salary Paid Period Earning per period

Weekly 52 times (once a week) ($40,000/52) $769.23

Biweekly 26 times (every two weeks)($40,000/26) $1,538.46

Semimonthly 24 times (twice a month) ($40,000/24) $1,666.67

Monthly 12 times (once a month) ($40,000/12) $3,333.33

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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

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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

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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

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Straight Piece Rate Pay; Differential Pay Schedule

Straight Piece Rate Pay

Gross pay = Number of units produced x Rate per unit

Differential Pay Schedule

Gross pay = Number of units produced x Various rates per

unit

Units Amountproduced per unit1-50 $1.0051-200 1.50Over 200 1.75

Rob produced 225 widgets. He is paid $1.25 per widget.

Calculate his gross pay

225 x $1.25 = $281.25(50 x $1.00) +(150 x

$1.50)+(25 x $1.75) = $318.75

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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

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Straight Commission with Draw

Commission is a certain percentage of the amount a

salesperson sells.

Draw is an advance on the salesperson’s commission

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?

($100,000 x .08) = $8,000

-750 $7,250

Commission amount = (Sales x rate) - Draw

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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

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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

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Calculate Commission—variable scale

• 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

Up to $25,000 5%Excess of $25,001 to $40,000 7%Over $40,001 8%

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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

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Assignment

• Review unit 9-1, pps. 221—225

• Work drill problems 9-1 to 9-13, pps. 233-234

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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

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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

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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

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• Prepare and explain the parts of a payroll register

• Explain and calculate federal and state unemployment taxes

Payroll#9#9Learning Unit Objectives

Computing Payroll Deductions for Employees’ Pay; Employers’ Responsibilities

LU9.2LU9.2

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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

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Payroll Register

Week #41

Allowance& Salary

Employee marital Cum. per Cum. Health NetName status earnings week Reg. Ovt. Gross earnings S.S. Med. S.S. Med. FIT SIT Ins. Pay

Rey, Allice M-2 80,000 2,000 2,000 - 2,000 80,000 400 2,000 24.8 29 385.4 120 100 1,340.83A B C D E F G H I J K L M

GONZALES COMPANYPayroll Register

Earnings Taxable Earnings FICA

FICADeductions

Rate Base

Social Security 6.20% $80,400*

Medicare 1.45 No Base

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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

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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

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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

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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

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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

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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?

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Thomas continued

• Taxable SS = base – ytd earnings• Taxable = 80,400 - 79166.73 = 1233.27• SS tax = 1233.27 * 6.2% = 76.46• Medicare tax = 4166.67 * 1.45% = 60.42

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Federal Income Tax Withholding (FIT)

1. Wage Bracket Method

handbook p. 32-33

2. Percentage Method

handbook p. 34

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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

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Table 9.1 - Payroll Table (Partial)

MARRIED Persons - WEEKLY Payroll Period

At But less 0 1 2 3 5 6 7 8 9 10least than

1,090$ 1,100$ 171 157 142 128 107 99 91 83 76 681,100 1,110 174 159 145 130 108 100 93 85 77 691,110 1,120 177 162 148 133 110 102 94 86 79 711,120 1,130 180 165 150 136 111 103 96 88 80 721,130 1,140 182 168 153 139 113 105 97 89 82 741,140 1,150 185 171 156 142 114 106 99 91 83 751,150 1,160 188 173 159 144 116 108 100 92 85 771,160 1,170 191 176 162 147 118 109 102 94 86 781,170 1,180 194 179 164 150 121 111 103 95 88 801,180 1,190 196 182 167 153 124 112 105 97 89 811,190 1,200 199 185 170 156 126 114 106 98 91 831,200 1,210 202 187 173 158 129 115 108 100 92 841,210 1,220 205 190 176 161 132 117 109 101 94 861,220 1,230 208 193 178 164 135 120 111 103 95 871,230 1,240 210 196 181 167 138 123 112 104 97 891,240 1,250 213 199 184 170 140 126 114 106 98 901,250 1,260 216 201 187 172 143 129 115 107 100 921,260 1,270 219 204 190 175 146 131 117 109 101 931,270 1,280 222 207 192 178 149 134 120 110 103 951,280 1,290 224 210 195 181 152 137 123 112 104 961,290 1,300 227 213 198 184 154 140 125 113 106 981,300 1,310 230 215 201 186 157 143 128 115 107 991,310 1,320 233 218 204 189 160 145 131 116 109 1011,320 1,330 236 221 206 192 163 148 134 119 110 1021,330 1,340 238 224 209 195 166 151 137 122 112 1041,340 1,350 241 227 212 198 168 154 139 125 113 1051,350 1,360 244 229 215 200 171 157 142 128 115 1071,360 1,370 247 232 218 203 174 159 145 130 116 1081,370 1,380 250 235 220 206 177 162 148 133 119 1101,380 1,390 250 238 223 209 180 165 151 136 121 111

If the wages are And the number of withholding allowances claimed is -

The amount of income tax to be withheld is -

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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

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Table 9-3,9-4 Percentage method income tax withholding tables

OneWithholding

Payroll Period AllowanceWeekly $ 55.77Bi weekly 111.54Semimonthly 120.83Monthly 241.67Quarterly 725.00SemiAnnually 1450.00Daily or miscellaneous (each 11.15day of the payroll period)

(b) MARRIED person -if the amount of wages(after subtracting The amount of income taxwithholding allowances) is: to withhold is:Not over $124 $0Over -- 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

Partial

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Percentage Method2 allowances; $2,000 weekly gross

1) Locate one withholding allowance and multiply by the number of allowances employee claims

2) Subtract step 1 from employees pay

3) In table 9.2 locate appropriate table and compute income tax

$55.77 x 2 = $111.54

$2,000.00 - 111.54$1,888.46

$1,888.46 - 960.00$ 928.46

Tax $125.40 + .28 ($928.46) $125.40 + 259.97 = $385.37

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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

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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

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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

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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

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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

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ASSIGNMENT

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