Accounting and Finance Foundations

Unit 8

Accounting and Finance Foundations Unit 8: Payroll 654

Payroll

Lesson 19.1

Introduction

This unit will cover the taxes both employees and employers are required to pay. For the purpose of this

unit, the employee and employer portions of the Social Security tax rate are both 6.2% (12.4% total). Also,

assume that the Medicare tax rate for both employees and employers is 1.45% (2.9% total).

Employee Taxes

How many of you have ever received a paycheck? Do you know where that paycheck came from or how the

amount of the check was determined? What are taxes, and why is your take-home pay a whole lot less than

what you actually make? This unit is going to discuss these items.

Gross Pay

Employees can be paid a variety of ways, but the two most common are salary and hourly. After determin-

ing how an employee will be paid, employers must determine how often they want to pay that employee.

If an employee is paid weekly, the employee will receive 52 checks a year; if biweekly (every other week),

the employee will receive 26 checks per year; if semimonthly (twice a month, usually on the 1st and 15th),

24 checks a year; and if monthly, 12 checks per year.

Gross Pay

The amount you “make” and the amount you bring home are two very different numbers. The amount you

make is considered your gross pay: the amount before any taxes or other deductions are taken.

If you are a salaried employee, you get paid a certain amount of money each pay period, and that amount

doesn’t change, no matter how much time you work during each pay period.

For example, if Nathan makes $30,000 a year and is paid biweekly, the amount of his gross pay is

$30,000 ÷ 26 = $1,153.85 per pay period.

If you are paid at an hourly rate, the amount of money you make correlates directly to the number of hours

you work. To calculate gross pay for any hourly employee, you multiply the number of hours worked times

the hourly rate.

Gross Pay = Hours Worked x Hourly Rate

For example, if Joe works 40 hours during a particular week and is paid $7 per hour, the amount of his

gross pay is 40 x $7 = $280 for the week.

Chapter 19

Student Guide