The Mathematics of Money

588 Chapter 15 Payroll and Inventory

We have already discussed FICA from the employee’s side. FICA includes Social Security

and Medicare taxes, and the employee’s share totals 7.65% of gross income less pretax benefit

costs. The employer, however, also must pay FICA taxes in an amount equal to the employee’s

share. (The self-employed must pay a self-employment tax of 15.3%, equal to the combined

employer and employee shares.)

Unemployment taxes are taxes to fund federal and state unemployment benefits. It

is typical for an employer to pay a combined total of 5.4% of the first $7,000 of each

employee’s wages for these taxes. In some cases, though, an employer may pay more than

this, depending on the amount of unemployment claims filed by its workers.

Example 15.1.11 Arturo’s body shop has three employees, who earned $32,750,

$28,595 and $44,016 (after pretax benefi t deductions) last year. Assuming he pays

the typical unemployment tax rate, how much did Arturo have to pay for FICA and

unemployment taxes last year?

FICA is 7.65% of these salaries: (7.65%)($32,750  $28,595  $44,016) 


(7.65%)($105,361) 
 $8,060.12.

Unemployment tax applies only to the fi rst $7,000 of income; since each of his employees

earned more than that $7,000, he would pay the tax on 3($7,000) 
 $21,000 of income:

(5.4%)($21,000) 
 $1,134.

Employers may have other costs based on their total payrolls. Costs for employee benefits,

liability insurance, and worker’s compensation insurance, among other costs, must also be

taken into an account in considering how much a worker costs the company.

EXERCISES 15.1

A. Gross Pay: Salary

1. Trent earns a salary of $39,835 annually. Calculate his gross biweekly pay.


2. Luna earns $54,836 annual salary. Calculate her gross semimonthly pay.

B. Gross Pay: Hourly

3. Sam earns $7.35 an hour. Last week she worked 36½ hours. Calculate her gross weekly pay.


4. Gideon makes $18.95 an hour, and is paid biweekly. Last week he worked 32 hours; this week he worked 17.5 hours.
   Calculate his gross pay for this 2-week period.


5. Jorge makes $15.92 an hour. His time card for the last 2 weeks is given below. Calculate his gross pay for this 2-week
   period.

Week Ending Sun Mon Tues Wed Thurs Fri Sat

March 12 0 8 10 11.5 7.5 8 0

March 19 0 9 7 6 6.5 4 0