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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
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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
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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
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Hourly Rate Plan
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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
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Handling Overtime Payments
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Handling Overtime Payments
• FLSA ( Fair Labor Standard Act) – Exempt employees are not covered under FLSA for
the overtime provision.
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Handling Overtime Payments
• 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
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Handling Overtime Payments
• 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
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Hourly Rate Plan
• Hourly rate plan – Employee hours are
usually recorded on time cards.
– Time card includes: • Regular hours • Overtime hours • Holiday hours
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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
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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?
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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
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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
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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.
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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
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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
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.4-20
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.
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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
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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
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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.
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FLSA Minimum Wage Requirements
• 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.
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FLSA Minimum Wage Requirements
• 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
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FLSA Minimum Wage Requirements
• 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
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.4-27
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
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Salary-Commission Plan
• Salary-commission plan: • Incentive plans for sales
people • Encourages higher sales
level • Provides security to
employees on period of low sales
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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
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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.
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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
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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.
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Unit Summary
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Questions?
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