Unit 4 Determining Gross Earnings McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Unit 4Unit 4

Determining Gross EarningsDetermining Gross Earnings

McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Hourly Rate Plan

• Hourly rate plans: – Employee receives a fixed amount for each hour

they work – Example:

Samio Martinez has an hourly rate of $28.60 per hour. He works 40 hours. Calculate Samio’s gross earnings?

– 40 hours x $28.60 = $1,144.00– Samio’s gross earnings: $1,144.00

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.4-3

Hourly Rate Plan

• Hourly rate plan (fractions of an hour):– pro-rate based on the

fraction of hours worked at his regular rate of pay.

– convert the fraction hour to decimal amounts

¼ = .25 ½ = .50 ¾ = .75

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10:1510:45

10:30

10:00

4-4

Hourly Rate Plan

• Hourly rate plan (fractions of an hour) – Example:

• Mr. Martinez worked only 37 ½ hours. His hourly rate is $28.60 per hour.

What is Mr. Martinez’ gross earnings? 37.50 hours x $28.60 = $1,072.50

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.4-5

Hourly Rate Plan

• Hourly rate plan – Suited for employees whose

work schedules vary from one period to another

– Widely used for:• Production employees• Retail stores• Restaurants• Hotels • Construction workers• Service employees


Hourly Rate Plan


Handling Overtime Payments

• FLSA ( Fair Labor Standards Act) – non-exempt employees must be paid an overtime

rate for all the time worked beyond regular hours (40 hours)

– Overtime rate is 1.5 times the regular rate



4-9


• FLSA ( Fair Labor Standard Act) – Exempt employees are not covered under FLSA for

the overtime provision.



• Example: – Mr. Martinez worked 43 hours. – His regular rate is $28.60.

• What is Mr. Martinez’s overtime rate? – $28.60 x 1.5 = $42.90



• Example: – What is Mr. Martinez’s regular and overtime gross

earnings ? • Regular gross earnings - $28.60 x 40 = $1,144.00

• Overtime gross earnings - $42.90 x 3 = $128.70

• Total gross earnings = $1,144.00 + $128.70 = $1272.70


Hourly Rate Plan

• Hourly rate plan – Employee hours are

usually recorded on time cards.

– Time card includes: • Regular hours • Overtime hours • Holiday hours


Night Bonus

• Night bonus: – Extra pay for employees

that work evening or night shift

– also called “shift differential”

– is in addition to the overtime pay


Night Bonus

• Example: • Donald Teery hourly rate is $10.00. His company pays

$3.00 per hour as a night bonus for work done between 8:00 p.m. and 8:00 a.m. Donald worked from 9:30 a.m. to 10:30 p.m. After 5:30 pm., all hours were considered overtime hours.

Calculate Donald’s gross earnings?


Night Bonus

• Example: – Calculate Donald’s gross earnings?

• Regular hours – 9:30 a.m.– 5:30 p.m. = 8 hours • Overtime hours – 5:31 p.m. – 10:30 p.m. = 5 hours • Night bonus hours – 8:00 p.m.- 10:30 p.m. = 2.5 hours

Total Gross earnings calculation– Regular earnings = 8 hours x $10.00 = $ 80.00– Overtime earnings = 5 hours x $15.00 = $75.00– Night bonus = 2.5 hours x $ 3.00 = $7.50– Total Gross earnings= $162.50


Salary Plan

Salaried employees: – Are paid a fixed amount for each payroll period– Exempt employees are:

• managers and supervisors – are not subject to overtime provisions

• lower-level salaried employees - are subject to overtime provisions


Salary Plan

Salaried employees: – Time lost - employees worked less than the required

number of hours the salary must be adjusted for the hours not worked.


Salary Plan

Example # 1 : – Mr. McDermitt is paid $1,325 for a regular 40-hour

week. He took three (3) hours of time off. He is paid on a biweekly payroll period.

• What is his hourly rate? $1,325 / 40 hours = $33.13 Gross earnings calculation:

Week 1 - $ 1,325 Week 2 - $ 33.13 x 37 = $1225.81 Total gross earnings = $1,325 + $1,225.81 = $2550.81


Salary Plan

Example # 2 : – Helen Tillery is a supervisor. Her salary is $ 660 for a

regular 40-hour week. The company is required to pay Helen overtime. On this week She worked 43 hours.

• What is her hourly rate? $660 / 40 hours = $16.50• What is her overtime rate? $16.50 x 1.5 = $ 24.75• Gross earnings calculation:

Regular earnings - $ 660 Overtime earnings - $24.75 x 3 = $ 74.25 Total gross earnings = $660 + $74.25 = $ 734.24


Salary Plan

Example # 3 : – Rita Lopez has a regular

work week of 40 hours.– She receives overtime for all

hours beyond 40 in a week. – Her regular salary is $1,950

per month. – During this month she

worked 5 hours overtime.

4-21

Salary Plan

Example # 3 : – What is Rita’s hourly and overtime rate?

Annualize her monthly earnings: $1,950 x 12 months = $23,400Weekly salary = $23,400 / 52 weeks = $450 Hourly rate = $450 / 40 hours = $11.25Overtime rate = $11.25 x 1.5 = $16.875Gross earnings calculation:

Regular monthly earnings- $1,950 Overtime monthly earnings - $16.88 x 5 hours = $84.40Total gross earnings = $1,950 + $84.40 = $2,034.40

4-22

Piece Rate Plan

• Piece rate pay:– Employees receive a certain amount for each item

they produce. – Example #1 :

• Marjorie Yellowbird works in a factory. Her piece rate is 28 cents. During this week she completed 2,100 items.

• Gross Earnings = 2,100 items x .28 = $588


FLSA Minimum Wage Requirements

• Piece-rate plan and Fair Labor Standards Act: – employees must earn at least equal to the minimum

wage.

– employees are subject to overtime pay provisions for hours worked beyond 40 hours per week.



• Piece-rate plan and Fair Labor Standards Act: – Two methods are used:

• Method #1 – employee earns 1.5 times the hourly rate for the overtime hours.

• Method # 2 – employee earns an agreed-upon piece rate for all items produces during overtime hours.



• Example Method # 1 : – Ms. Ong worked 43 hours and had a gross earnings

of $480 based on her piece rate . • Her hourly rate is: $480 / 43 = $11.16• Her Overtime rate is: $11.16 x .5 = $ 5.58• Her gross earnings are :

Regular earnings : $480Overtime earnings: $5.58 x 3 = $16.74Gross Earnings = $480.00+ $ 16.74



• Example Method # 2 : – Lois Magnum works in a furniture factory, her piece

rate is 42 cents and the established overtime rate per piece is 63 cents.

– During this week she completed 850 items in the regular 4 hours and 54 items in 3 overtime hours.

• Her gross earnings are : Regular earnings : $.42 x 850 items = $357.00Overtime earnings: $.63 x 54 items = $34.02Gross Earnings = $357.00+ $34.02


Commission Plan

• Commission: – Incentive plan for

salespeople – Earnings depend on the

amount of goods sold – Each salesperson

receives a percentage of the sales for the period

– Commission rate = percentage paid based on sales


Salary-Commission Plan

• Salary-commission plan: • Incentive plans for sales

people • Encourages higher sales

level • Provides security to

employees on period of low sales


Salary-Commission Plan

Example:• Stanley Martin is a sales manager. He receives a salary

of $ 405 a week plus commission of 9%. He also has a sales quota of $2,000.00

• Calculate gross earnings:– Total sales minus quota = 7500 – 2000= 5,500– Commission = 5,500 x .09 = $495– Salary and commission earnings = $405+ $495 = $900


Bonuses and Profit Sharing

• Bonus: – Reward for extra effort on the job– Different types of bonuses:

• Gift after a successful period of operations • Amount paid based on the kind of goods sold.• Compensation paid to managers if profits/sales rise above

certain level.


Bonuses and Profit Sharing

• Profit Sharing: – the firm shares with the

employees part of the profits that it earns each year.

– is paid on cash or stock – is placed on the retirement

accounts– encourages employee’s

hard work and loyalty


Tips

• Tips– “To insure prompt service” (TIPS) – Is a gift from the customer for

services obtained – Any employee receiving more than

$ 20 a month in tips is considered a “tipped employee”

– Under FLSA – the tips and the hourly wage must be equivalent or higher than the minimum wage.


Unit Summary


Questions?


Unit 4 Determining Gross Earnings McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Documents

hours overtime rate

hourly rate plan copyright

mcgrawhill companies

martinezs overtime rate

overtime gross earnings

regular rate of pay

hours x

donald teery hourly