584 Chapter 15 Payroll and Inventory
Gross Pay Based on Commission
Some workers, particularly those involved in sales, are paid a commission based on the
amount that they sell. At its simplest, an employee paid straight commission receives some
percentage of sales. For example, an employee paid 8% commission on sales who makes
$5,000 in sales in a week would be paid (8%)($5,000) $400 gross for the week.
There are several variations on this approach, however.
Some commissioned employees are paid a draw, which is essentially an advance against
the commission that they will earn. When the employee is paid, the draw is subtracted from
the commission. (If the commission earned is less than the draw, the employee either will
have to repay it or carry it forward against future commissions.)Example 15.1.6 Brianna works at a jewelry store and is paid a commission of 5.25%
on sales. In the month of April, she was given a $500 draw against her commission.
Her sales in April totaled $34,900. Calculate her gross pay for April.Brianna’s commissions would be (5.25%)($34,900) $1,832.25. Subtracting her draw
from this, she would be paid $1,832.25 $500 $1,332.25 gross.With a variable commission schedule, the percent commission rate varies, depending on
the amount of sales.Example 15.1.7 A fi nancial services company pays its representatives a commission
on their monthly mutual fund sales. The commission schedule is:Monthly Sales Commission Percent0–$10,000 1.25%
$10,000–$25,000 1.75%
$25,000 2.15%Ivan made $18,250 in mutual fund sales last month. Calculate his commission from
these sales for the month.The fi rst $10,000 is paid at the 1.25% rate; the remaining $8,250 is paid at the 1.75% rate.(1.25%)($10,000) (1.75%)($8,250) $125 $144.38 $269.38.Another variation on commissions is salary plus commission, or base plus commission.
Some employees are paid a salary (or hourly wage) with the opportunity to additionally
receive a commission based on their sales. Often, commissions are paid only on sales
above a certain minimum amount.Example 15.1.8 Bex works as a salesperson at a car dealership that pays her an
$18,000 annual salary, plus a 0.75% commission on sales above $175,000 in each
month. In August she made $304,000 in sales. Calculate her gross pay for August.Her salary for the month is $18,000/12 $1,500.She will be paid a commission on $304,000 $175,000 $129,000 of sales. The com-
mission amounts to (0.75%)($129,000) $967.50.Bex’s total gross pay for August would be $1,500 $967.50 $2,467.50.Calculating Net Pay
While a worker’s gross pay is the starting point of his paycheck, anyone who has ever had
a job is painfully aware that quite a bit may be subtracted from that gross to get to the net
pay. Payroll deductions are amounts subtracted from gross pay, and such deductions can
be made for a host of different reasons.
Taxes: Taxes represent one of the largest, if not the largest, payroll deductions for
workers. Income tax withholding is money that an employer deducts from gross pay for
federal, state, or local income taxes. The employer is required to calculate the amount to