Lecture Practical business math procedures (11/e) - Chapter 9: Payroll

In this chapter, the learning objectives are: 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 with draw, variable commission scale, and salary plus commission;...

Chapter Nine

Payroll

Learning unit objectives

LU 9-1: Calculating Various Types of Employees’ Gross Pay

1. Define, compare, and contrast weekly, biweekly, semimonthly,

and monthly pay periods

2. Calculate gross pay with overtime on the basis of time

3. Calculate gross pay for piecework, differential pay schedule,

straight commission with draw, variable commission scale, and salary plus commission

1. Prepare and explain the parts of a payroll register

2. Explain and calculate federal and state unemployment taxes

LU 9-2: Computing Payroll Deductions for Employees’ Pay; Employers’

Responsibilities

Payroll Cycles

Hourly Rate of Pay;

Calculation of Overtime

Gross pay =

Hourly overtime pay rate = Earnings for 40 hours + Earnings at time-and-a-half rate

Hours employee worked x Rate per hour

Regular hourly pay rate x 1.5 Gross pay =

Hourly Rate of Pay; Calculation of Overtime

R Valdez 13 8.5 10 8 11.25 10.75 61.5

*Rate is $9.00 per hour.

Hourly overtime pay rate =

Gross pay =

(40 hours x $9) + (21.5 hours x 13.5)

$360 + $290.25 = $650.25 61.5 – 40 = 21.5 overtime hours $9 x 1.5 = 13.50 overtime rate

Regular hourly pay rate x 1.5

Earnings for 40 hours + Earnings at time-and-a-half rate

Straight Piece Rate Pay

Gross pay = Number of units produced x Rate per

unit

Ryan Foss produced 900 dolls He is paid $.96 per doll Calculate

his gross pay.

900 x $.96 = $864.00

Example:

Differential Pay Schedule

Gross pay = Number of units produced x Various rates per unit

Logan Company pays Abby Rogers on the basis of the following schedule:

Last week Abby produced 300 dolls What is Abby’s gross pay?

(50 x $.50) +(100 x $.62)+(50 x $.75) + (100 x $1.25) = $249.50

Example:

Straight Commission with Draw

Commission is a certain percentage of the amount a salesperson sells

Draw is an advance on the salesperson’s commission

Logan Company pays Jackie Okamoto a straight commission of 15%

on her net sales (net sales are total sales less sales returns) In May,

Jackie had net sales of $56,000 Logan gave Jackie a $600 draw in

May What is Jackie’s gross pay?

($56,000 x 15) = $8,400

600

$7,800

Example:

Variable Commission Scale

Different commission rates for different levels of net sales

Up to $35,000 4%

Excess of $35,000 to $45,000 6%

Over $45,000 8%

Last month, Jane Ring’s net sales were $160,000 What is Jane’s gross pay based on the schedule?

($35,000 x 04) + ($10,000 x 06) + ($115,000 x 08) = $11,200

Example:

Salary Plus Commission

Gross pay = Salary + Commission

Logan Company pays Joe Roy a $3,000 monthly salary plus a 4%

commission for sales over $20,000 Last month Joe’s net sales were

$50,000 Calculate Joe’s gross pay

$3,000 + ($30,000 x 04) = $4,200

Example:

Payroll Register

Social Security 6.20% $110,100

Medicare 1.45 No Base

Federal Income Tax Withholding (FIT)

1 Percentage Method

Percentage method income tax withholding

tables

TABLE 9.1

TABLE 9.2

(Partial)

You can use

the percentage method to calculate federal income tax withholding (FIT)

Step 1 In Table 9.1, locate the

weekly withholding for one

allowance Multiply this number

by 2

Percentage Method

Step 2 Subtract Step 1 from

employee’s pay

Step 3 In Table 9.2, locate

appropriate table and compute

income tax

$73.08 x 2 = $146.16

$2,250.00 146.16

$2,103.84

$2,103.84 1,515.00

$ 588.84

Tax $187.15 + 25 ($588.81) $187.15 + 147.21 = $334.36

Example: Alice Rey earns $2,250 for week 47 She is married with two

allowances

Employers’ Responsibilities

Federal Unemployment Tax Act (FUTA) —

6.2% tax on the first $7,000 paid to employees as

wages during the calendar year

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.

Assume a company has total wages of $19,000 and $4,000 of the wages are exempt from SUTA What are the company’s SUTA and FUTA taxes if the

company’s SUTA rate is 5.8% due to a poor employment record?

$20,000 $4,000 (exempt wages) = $16,000

6.2% FUTA 5.4% SUTA credit .8% FUTA tax

Example: