Income

Overtime Wages

A higher hourly wage for working more than 40 hours a week

Net Pay

Have you ever looked at your pay stub and wondered where it all went? Sometimes it doesn't seem as if you have much take-home pay. As you know, your gross pay is the amount of money you earned in a pay period. Your net pay, or take-home pay, is your gross pay minus deductions. A deduction is money withheld from pay for taxes, insurance, contributions, retirement, etc. The largest deduction from most people's paycheck is for taxes. These include federal income tax, Social Security tax or FICA, state tax, and local tax. The amount of federal income tax withheld from your check is determined by the number of withholding allowances you claim and the amount of your gross pay. You may claim one withholding allowance for yourself, one for your spouse, and one for each dependent child. FICA stands for Federal Insurance Contributions Act, but most of us know it better as Social Security. This tax is withheld from employees' paychecks at a set percentage of pay up to a maximum amount of income. If the employee earns over that maximum amount in the year, the remainder of income is not subject to FICA withholding. Both the maximum amount subject to the tax and the tax rate have changed over the years. Example: Let's say Paul, from the previous example, also has a base weekly salary of $500.00. His total deductions are $135.50. Find his net pay. Solution: To find Paul's net pay, simply add his base salary to his commission and subtract the total deductions. 500.00+ 350.00850.00 Add Pauls base salary to his commission. His gross pay is $850.00. 850.00- 135.50714.50 Subtract the total deductions from his gross pay. Answer: Paul's net pay is $714.50

Overtime

Many companies pay a higher hourly wage for working overtime—that is, more than 40 hours a week. A common overtime rate is time and a half. This means that employees will be paid 1.5 times their hourly rate for overtime hours. Example: Let's say John works for a company that pays time and a half for any hours over 40 in any particular week. Determine his gross pay. Solution: First, you would determine John's overtime rate. Then, you would multiply this rate by the number of overtime hours. Finally, add these overtime wages to his regular wages to find John's gross pay. Multiply Johns hourly rate by 1.5 to determine his overtime rate. Place a decimal in the product. John's overtime rate is $12.75. 42 - 40 = 2 Subtract 40 from the number of hours John worked to determine his overtime hours. Multiply his overtime rate by his overtime hours. Place a decimal in the product. John makes $25.50 for his overtime hours. Multiply 40 by Johns hourly rate to find his regular wages. Place a decimal in the product. John makes $340.00 for his regular hours. Finally, add Johns regular wages to his overtime wages. Answer: John earns $365.50. Sometimes a company pays overtime based on the number of hours worked per day instead of the number of hours worked per week. Example: Let's say John, from the previous examples, gets paid time and a half for any hours over an eight-hour workday. Find his gross pay. Solution: Since John is paid overtime based on an eight-hour workday, he will earn time and a half for the two overtime hours on Thursday and the two overtime hours on Friday. Therefore, John will earn overtime pay for 4 hours and his regular rate for the other 38 hours. Multiply Johns overtime rate by his overtime hours. Johnmakes $51.00 in overtime. Multiply Johns regular rate by his regular hours. John makes$323.00 for his regular pay. Finally, add Johns overtime wages to his regular wages. Answer: John's gross pay is $374.00. In addition to time and a half, some companies pay double (or even triple) time for working on weekends and holidays.

Calculator Applications: INterest

Once again, using the calculator to find interest requires performing operations you've done before. Let's find the interest on a $1000 loan at 8% for 3 years.1. Turn on the calculator.2. Enter the principal. Press 1, 0, 0, 0.3. Press the x key. (You're going to multiply the principal by the rate.)4. Press 8 and then the % key. Press the = key. The number 8 should appear in the window.5. Press the x key. (You're going to multiply this number by the time.)6. Enter the time. Press 3.7. Press the = key. The answer of 240 should appear in the window. The interest owed is $240.

Salar

Pay a fixed amount weekly, biweekly, semimonthly, monthly, or annually

Commisionss

Pay based on sales

Piecework Wages

Pay for the amount of work completed

Compound Interest

Simple interest is calculated on the principal only. In compound interest, the interest is added to the principal, and future interest is calculated on both the principal and the interest. In other words, you earn interest on your interest. Interest can be compounded semiannually, quarterly, monthly, daily, even continuously. To calculate compound interest, you must first consider how often the interest is compounded. For example, if interest is compounded semiannually, then your interest is calculated twice a year—every 6 months. Therefore, there are two compounding periods in the year. Example: How much money will you have at the end of one year if interest is compounded semiannually at 8% on a $500 deposit? Solution: First, you will find the interest earned during the first compounding period. Then, you'll add this to the original principal. Next, find the interest on this new principal for the second compounding period. Finally, add this interest to the new principal to obtain the final balance. Interest = P x R x T Use the interest formula. Interest = 500 x .08 x 6⁄12 Substitute the values. Since interest is compounded semiannually, the time is 6 months. Interest = 20 Multiply to solve. New principal = 500 + 20 = 520 Add the interest to the principal to get the new principal. Use this amount to calculate the interest for the second compounding period. Interest = 520 x .08 x 6⁄12 Substitute the values. Interest = 20.80 Multiply to solve Balance = 520 + 20.80 = 540.80 Add the interest to the principal. Answer: The final balance will be $540.80. If the interest were compounded quarterly, there would be 4 periods in a year. You calculate the interest the same way, except that you have to repeat the calculations 4 times for each year. For monthly compounding, you have to repeat the calculations 12 times for each year. Although this process isn't difficult, it's tedious and time-consuming. Fortunately, there are tables available that make calculating compound interest much easier.

Principal

The amount of money deposited or borrowed

Gross pay

The amount of money you earned in a pay period before deuctions

INterest

The cost of money

Compound Interest

The interest is added to the principal, and future interest is calculated on both the principal and the interest

Simple Interest

The easiest type of interest to calculate is simple interest. Simple interest is found by multiplying a base amount by an interest rate or percent and factoring in the consideration of time. In an interest calculation, the amount of interest is the percentage. Recall that the percentage isn't a percent (that's always the rate). By amount we mean the dollar amount of interest. The base is the amount of money deposited or borrowed, which is called the principal. Therefore, the formula for finding interest can be stated as follows: Interest = Principal x Rate x Time or Interest = P x R x T The rate for interest is always stated per year. Of course, you don't always deposit or borrow money for exactly a year or multiple of a year. You might deposit money for 10 months or borrow money for 18 months. When time is expressed in the number of months, you simply write it as a fraction with the number of months in the numerator and 12 (the number of months in a year) in the denominator: 10⁄12 and 18⁄12. In this way, time is still written in a portion of a year. In other cases, especially with loans, time may be expressed in days—for example, 120 days. You still write time as a portion of a year in a fraction, but there are two ways to calculate time expressed as days. The most obvious way is called exact interest. When the interest cost is calculated using exact interest, the number of days is the numerator of the fraction, and 365 (the number of days in a year) is the denominator: 120⁄365. The other method of calculating interest is called banker's interest or ordinary interest. With this method, the number of days is still the numerator of the fraction, but 360 (rather than the exact 365 days) is the denominator: 120⁄360.Example: You deposit $525 in a savings account that pays 5.5% interest. How much interest will you earn in two years? Solution: Substitute the values into the interest formula and solve. Interest = P x R x T Use the interest formula. Interest = 525 x .055 x 2 Substitute the given values. Interest = 57.75 Multiply to solve. Answer: You'll earn $57.75. Example: You borrow $1200 for 120 days at 6%. Calculate the amount of ordinary interest you'll pay to the bank. Solution: Substitute the values into the interest formula and solve. Remember to express the time as a fraction, using 360 in the denominator. Interest = P x R x T Use the interest formula. Interest = 1200 x .06 x 120⁄360 Substitute the given values. Interest = 24 Multiply to solve. Answer: You'll pay $24.

Hourly Wages

To calculate the amount earned by an employee who works for hourly wages, simply multiply the number of hours worked by the hourly rate. Example: John works the following hours in one week: Day of the Week Number of Hours Monday 6 hours Tuesday 8 hours Wednesday 8 hours Thursday 10 hours Friday 10 hours Total 42 hours Find John's gross pay if his pay rate is $8.50 per hour Solution: To find John's gross pay, multiply the total hours worked by the hourly rate. Hourly RateTotal HoursMultiplyPlace the decimal in the product. Answer: John makes $357.00.

Defining Interest

In business, one of the most common meanings of the word interest is the cost of money. When you deposit your money in a financial institution, your money earns interest. The financial institution is actually paying you to use the money you've deposited to make loans to individuals and businesses. Then those individuals and businesses pay interest to the financial institution for the use of the money they've borrowed. Interest is always calculated in the same way, whether it's interest on money deposited or interest on money borrowed.

Deduction

Money withheld from pay for taxes, insurance, contributions, retirement, etc.

Hourly Wages

Multiply the number of hours worked by the hourly rate

Simple Interest

Multiplying a base amount by an interest rate or percent and factoring in the consideration of time

Commissions

People who work in sales are often paid on a commission basis. A commission is similar to piecework except it's based on sales instead of the number of items produced. Commission is usually based on the dollar amount of sales. Example: If Paul earns 4% commission on total sales and his sales this week total $8,750, find his gross pay. Solution: To find Paul's earnings, simply change the percentage to a decimal and multiply by total sales. 4% = .04 Change 4% to a decimal by moving the decimal point two places to the left. Multiply this decimal by total sales. $8750 × .04$350.00 Place a decimal point in the product. Answer: Paul's earnings are $350.00. In this example, Paul earned what's called straight commission. In other words, everything he earned was based on commission. Sometimes companies pay a base salary plus commission. In this case, gross pay would be found by adding earnings from commission to the base salary.

Calculator Application: Income

You already know how to perform all of the necessary calculations on your calculator in order to determine gross pay and net pay. You learned about finding percents, adding, and subtracting in previous sections. Now you'll simply apply all of these to income. For example, suppose Casey earns a base salary of $750.00. She also receives a commission of 5% on her total sales of $1500.00. Her total deductions are $174.65. Find her net pay. On a calculator this problem can be solved as follows: Turn on the calculator. Enter the total sales. Press 1, 5, 0, 0. Press the key. (You're going to multiply the 5% by this amount.) Press 5 and then the % key. Press the = key. The number 75 should appear in the window. Press the + key. (You're going to add this number to the base salary.) Enter the base salary. Press 7, 5, 0. Press the = key. The number 825 should appear in the window. Press the - key. (You're going to subtract the total deductions from this number.) Enter the total deductions. Press 1, 7, 4, decimal point, 6, 5. Press the = key. The answer 650.35 should appear in the window. Casey's net pay was $650.35.

Earning money

As you know, an employee is any person who earns money, or wages, to do work for another person or company. The employer is the person or company who pays the employee. The employee's pay may be based on hourly wages, piecework wages, salary, commission, or some combination of these methods. The employee may also be paid overtime for working more than his or her usual amount of hours per day or week. The amount of money earned in a pay period is called gross pay.

Piecework Wages

Instead of paying workers for the amount of time they put in, some companies pay workers for the amount of work they complete. The rate paid for work done by the piece is called piecework rate. Piecework rates are most commonly used in manufacturing and agriculture. Example: Suppose that Raquel's company manufactures widgets and pays employees $2.25 per widget produced. Using the following chart, which lists the number of widgets Raquel made each day, find her gross pay. Day of the Week Number of Hours Monday 20 Tuesday 28 Wednesday 29 Thursday 43 Friday 41 Total 161 Solution: Simply multiply the piecework rate by the total number of widgets Raquel produced. Multiply the rate by the number produced. Place a decimal in the product. Salary Some employees are paid a salary or fixed amount. Salary may be stated weekly, biweekly, semimonthly, monthly, or annually. You can compare salaries that aren't based on the same pay period by converting each to its annual equivalent. For example, Leroy is offered an annual salary of $20,000. Let's figure out how much that is for each of the following: Weekly: 52 weeks per year $20,000 52 = $384.62 (rounded) Biweekly: 26 pay periods per year $20,000 26 = $769.23 (rounded) Semimonthly: 24 pay periods per year $20,000 24 = $833.33 (rounded) Monthly: 12 months per year $20,000 12 = $1,666.67 (rounded) To find these amounts, we simply divided the same $20,000 per year into a different number of pay periods per year. In each case, if you multiply the amount per pay period by the number of pay periods per year, the total amount Leroy earns, except for the effects of rounding, is the same. All that changes is how often he gets paid and how much he gets paid each time.