Calculating Gross Pay - Home - Madison County Schools Gross Pay Introduction People work for a compensation. An employee is a person that works for others which are called employers.

Calculating Gross Pay

Introduction

People work for a compensation.

An employee is a person that works for others which are called employers.

Merriam Webster defines an employee as: “one employed by another usually for wages or salary and in a position below the executive level.”

Introduction

An employer hires employees to work.

There are many ways in which an employee can be compensated for his/her talents including but not limited to an hourly wage, salary, per diem, piecework, straight commission, and graduated commission.

Gross Pay

Gross pay is the amount of money a person receives for working.

Gross pay is the actual amount you earn, but not the amount of your take-home pay.

Federal, state, local, Social Security and Medicare taxes are deducted from your pay as well as other items you choose to have deducted such as health insurance, union dues, etc.

Gross Pay

Net Pay (amount you actually take home) = Gross Pay – Deductions. Gross pay is pay before any deductions are made.

Salaried Employee/Average Pay

A salaried employee receives a set amount of money each pay period whether he/she works 40 hours a week or 60 hours a week.

If a salaried employee earns $24,000 a year based on a 40 hour week, his/her gross pay for one month is $2000 (24,000/12 months) or his/her weekly gross pay is 461.54 (24,000/52 weeks).

Salaried Employee/Average pay

If a salaried employee works more than 40 hours a week, the employee’s pay doesn’t change because he/she is salaried.

Most companies will allow employees to receive sick days and vacation days, so if an employee works less than 40 hours, he/she can use sick leave or vacation leave.

Hourly Wage

An employee that gets paid by the hour is called an hourly employee.

They are paid for each hour worked.

They also receive overtime and sometimes double-time pay if they work over the specified regular time and on a holiday.

Hourly Wage

For example: Mary works 8 hours a day at $15.00 an hour. What is her daily gross pay?

Hourly wage x number of hours worked=Gross Pay

$15.00 (Hourly Wage) x 8 (Number of hours worked) = $120 (Gross Pay) The formula is: Gross Pay = Hourly Rate X Hours Worked

Formulas

Net Pay (amount you actually take home) = Gross Pay – Deductions. Gross pay is pay before any deductions are made.

Salaried Employees/Average pay = Annual salary / number of weeks paid

Hourly wage x number of hours worked=Gross Pay

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Overtime Pay

Hourly employees receive overtime for all hours worked over the regular working hours.

Some companies pay overtime for all hours worked over 8 hours a day.

Others pay overtime for all hours worked over 40 hours a week. It depends upon the company’s pay policy.

Overtime Rate is usually 1.5 times the regular hourly rate.

Overtime Pay

If an employee earns $15 an hour, the overtime rate would be $15 x 1.5 = $22.50 an hour for only those hours worked beyond the regular hours.

For an example: Veronica’s regular hourly rate is $7.50 an hour based on a 40-hour week--any hours over 40 hours a week will be considered overtime.

Overtime Pay

Last week she worked 43 hours.

What is her gross pay?

Her gross pay would be: Regular hourly rate: 7.50 Overtime rate: 7.50 x 1.5 = 11.25 40 x 7.50 = 300 3 x 11.25 = 33.75 Gross Pay is 333.75 (300 + 33.75)

Overtime Pay

Some company’s overtime policy states that overtime will be given for any hours worked over 8 hours a day.

For an example: Charleen’s hourly wage is $9.50 an hour.

She receives overtime for any hours worked over 8 hours a day.

Overtime Pay

If on Monday she worked 8.5 hours; Tuesday 8 hours; Wednesday 9 hours; Thursday 8 hours; and Friday 10 hours.

What is her gross pay?

Regular hours = 40; Overtime hours = 3.5

Overtime Pay

Regular hourly rate 9.50; Overtime hourly rate is 9.50 x 1.5 = 14.25; Gross Pay = (40 x 9.50) + (3.5 x 14.25); Gross Pay = 380 + 49.88; Gross Pay = 429.88

Double-time pay

Some companies but not all give double-time pay if it is necessary to work on a holiday such as Labor Day, Christmas Day, Thanksgiving, or even weekends.

Remember—not all companies do this.

They may just pay time and a half or nothing extra.

Double-Time Pay

For an Example: Thelma works for a company that pays double time for all holiday work.

Since production is up, the company needs Thelma to work on Labor Day at double time.

If she works 8 hours on Labor Day and receives double time pay, what will her gross pay be for that day if her hourly wage is 12.50?

12.50 x 2 = 25; 8 x 25 = $200 for working Labor Day.

Formulas

Overtime pay = 1.5 x Regular Pay Rate

Double time pay = 2 x Regular Pay Rate

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Per Diem

A per diem employee receives compensation per day.

For an example, if a per diem (meaning per day) employee receives $100 a day and works 9 days, the gross pay will be $900.

The Per Diem formula is: Number of Days worked X Pay Per Day = Gross Pay

Piecework Pay

Many employees are paid for each piece they produce.

Piecework pay is probably the oldest type of pay dating back before the 1600s. It is usually found in the garment industry and sometimes in the electronic industry.

Piecework employment can allow employees to work from home.

Employers believe that piecework is a performance-related pay.

The faster and better an employee works, the more pay he/she will receive.

Piecework Pay

The gross pay is calculated by multiplying the number of useable pieces produced by rate per piece.

For an example: Mary paints beautiful flowers on plates. She receives $3.25 per usable plate. If she painted 200 usable plates and 5 unusable plates in a week, her gross pay would be:

200 x 3.25 = $650. The formula is: Number of Usable Pieces Produced X Piece Rate = Gross Pay

Tip Wages

Some employees are paid by tips.

A tip or gratuity is the amount of money a person receives for a service they provide.

For an example: Thomas works as a waiter at a local restaurant. He receives $2.10 an hour plus tips.

He works 40 hours a week and averages $250 in tips. Thomas’s gross pay would be 40 x 2.10 + 250 = $334.

Formulas

Per Diem = Number of Days worked X Pay Per Day

Piecework pay = Number of Usable Pieces Produced X Piece Rate

Formulas

Tip wages = Tip percent x Total bill

Or

Tip wages = Tip per unit x Number of Units

Conclusion

Gross Pay is the amount an employee earns before taxes and any other deductions.

If you are an hourly employee, gross pay is based on the hourly rate times the number of hours worked.

Hourly employees can be paid overtime at time and half or double time.

Conclusion

If you are a salaried employee, gross pay is a set amount earned monthly or semi-monthly or weekly regardless of the number of hours worked.

A per diem employee’s gross pay is based on the number days worked and the wage per day.

Conclusion

A piecework employee’s gross pay is based on the number of usable pieces produced.

Tip employee’s gross pay is the hourly wage times hours worked added to tips received.

Assignment

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