270 chapter 9 • payroll
tryitexerciSe 8
Howard Lockwood sells for Catalina Designs, Inc. He is on a
3.5%
straight commission with
a
$2,000
drawing account. If he is paid the draw at the beginning of the month and then sells
$120,000
during the month, how much commission is owed to Howard?
Review exeRcises
Calculate the gross earnings per pay period for the following pay schedules.
Annual Salary Monthly Semimonthly Biweekly Weekly
1. $15,000 $1,250.00 $625.00 $576.92 $288.46
4. $21,600 $1,800.00 $900.00 $830.77 $415.38
8. Mary Jo Prenaris is an office manager with gross earnings of
$1,600
semimonthly. If her
company switches pay schedules from semimonthly to biweekly, what are Mary Jo’s new gross
earnings?
9. Deb O’Connell is an accounting professional earning a salary of
$58,000
at her firm. What is her
equivalent weekly gross pay?
10. Jennifer Brunner works 40 hours per week as a chef’s assistant. At the rate of
$7.60
per hour,
what are her gross weekly earnings?
11. Alan Kimball earns
$22.34
per hour as a specialty chef at Le Bistro Restaurant. If he worked
53hours last week and was paid time-and-a-half for weekly hours over
40
, what was his
grosspay?
12. Paul Curcio earns
$8.25
per hour for regular time up to 40 hours, time-and-a-half for overtime,
and double time for the midnight shift. Last week Paul worked 58 hours, including
6
hours on the
midnight shift. What are his gross earnings?
students calculate the annual salary,
then prorate (divide) to determine the
salary for the remaining pay periods.
9
Section i
Section i • employee’S GroSS earninGS and incentive pay planS 271
As the payroll manager for Stargate Industries, your task is to complete the following weekly
payroll record. The company pays overtime for all hours worked over 40 at the rate of time–
and-a-half. Round to the nearest cent when necessary.
Employee M T W T F S S
Hourly
Rate
Total
Hours
Overtime
Hours
Regular
Pay
Overtime
Pay
Total
Pay
13. Peters 7 8 5 8 8 0 0 $8.70 36 0 $313.20 0 $313.20
17. Larry Jefferson gets paid a straight piecework rate of
$3.15
for each alternator he assembles for
Allied Mechanical Corp. If he assembled
226
units last week, what was his gross pay?
you are the payroll manager for euro Couture, a manufacturer of women’s apparel.
yourworkers are paid per garment sewn on a differential piecework schedule as
follows.
Pay Level Garments Produced Rate per Garment
1 1–50 $3.60
2 51–100 $4.25
3 101–150 $4.50
4 Over 150 $5.10
Calculate last week’s total gross pay for each of the following employees.
Employee Garments Produced Total Gross Pay
18. Goodrich, P. 109 $433.00
21. Katrina Byrd assembles motor mounts for
C-207
executive planes. Her company has established
a differential piecework scale as an incentive to increase production due to backlogged orders.
The pay scale is
$11.50
for the first
40
mounts,
$12.35
for the next
30
mounts,
$13.00
for the
next
20
mounts, and
$13.40
for all remaining mounts assembled during the week. Katrina assem-
bled
96
mounts last week. What was her total gross pay?
22. Bob Farrell works for a company that manufactures small appliances. Bob is paid
$2.00
for each
toaster,
$4.60
for each microwave oven, and
$1.55
for each food blender he assembles. If he
produced
56
toasters,
31
microwave ovens, and
79
blenders, what were his total weekly gross
earnings?
23. What is the total gross pay for a salesperson on a straight commission of
4.7%
if his or her sales
volume is
$123,200
?
272 chapter 9 • payroll
24. Pamela Mello is paid on an incremental commission schedule. She is paid
2.6%
on the first
$60,000
and
3.4%
on any sales over
$60,000
. If her weekly sales volume was
$89,400
, what was
her total commission?
25. Dory Schrader is a buyer for Oceans of Notions. She is paid a weekly salary of
$885
plus a
4%
commission on sales over
$45,000
. If her sales were
$62,000
last week, what was her total
gross pay?
26. Thomas Rendell’s company pays him a straight
6%
commission with a
$1,350
drawing account
each month. If his sales last month totaled
$152,480
, how much commission is owed to Thomas?
27. Katie Jergens works for Dynamic Designs selling clothing. She is on a salary of
$140
per week
plus a commission of
7%
of her sales. Last week she sold
19
dresses at
$79.95
each,
26
skirts at
$24.75
each, and
17
jackets at
$51.50
each. What were her total gross earnings for the week?
28. Jerry King is a server in a restaurant that pays a salary of
$22
per day. He also averages tips of
18%
of his total gross food orders. Last week he worked 6 days and had total food orders of
$2,766.50
. What was his total gross pay for the week?
BUsiNess DecisiON: MiNiMUM wAGe TieD TO iNFLATiON
29. In an effort to keep low-wage workers’ salaries commensurate with the cost of living, a number
of states have amended their constitutions to allow the minimum wage to be adjusted with
inflation.
You are the accountant for Delicious, Inc., a company that owns a chain of
18
fast-food
restaurants in a state which adjusts the minimum wage for inflation. Each restaurant employs
35
workers, each averaging 20 hours per week at the current federal minimum wage,
$7.25
per hour.
a. How many hours at minimum wage are paid out each week by Delicious?
b. At the current rate of
$7.25
per hour, what is the amount of the weekly “minimum wage”
portion of the restaurant’s payroll?
c. If the inflation rate this year is
.7%
, calculate the “adjusted” minimum wage rate to be paid
next year.
85461_ch09_hr_262-303_1.indd 272 9/23/15 4:50 PM
Section ii • employee’S payroll deductionS 273
emPloyee’s Payroll deductions
“Hey! What happened to my paycheck?” This is the typical reaction of employees on seeing
their paychecks for the first time after a raise or a promotion. As we will see, gross pay is by
no means the amount of money the employee takes home.
Employers, by federal law, are required to deduct or withhold certain funds, known as
deductions or withholdings, from an employee’s paycheck. Employee payroll deductions fall
Net pay =Gross pay −Total deductions
comPutinG fica taxes, both social security and
medicare, Withheld from an emPloyee’s Paycheck
In 1937 during the Great Depression, Congress enacted legislation known as the Federal
Insurance Contribution Act (FICA) with the purpose of providing monthly benefits to retired
and disabled workers and to the families of deceased workers. This social security tax, which
is assessed to virtually every worker in the United States, is based on a certain percent of the
worker’s income up to a specified limit or wage base per year. When the tax began in 1937,
deductions or withholdingsFunds
9-5
Federal Insurance Contribution
Act (FICA)Federal legislation enacted
in 1937 during the Great Depression to
provide retirement funds and hospital
insurance for retired and disabled workers.
d. How much in “additional wages” will Delicious have to pay out next year at the adjusted rate?
e. (Optional) Go to www.dol.gov/whd/minwage/america.htm and click on your state to find the
current minimum wage. Calculate the weekly “minimum wage” portion of the restaurant’s
payroll assuming the restaurant is located in your state.
f. (Optional) Suggest some ways that the restaurant chain or other small businesses can offset the
Section ii
9
85461_ch09_hr_262-303_1.indd 273 9/23/15 4:50 PM
Section ii • employee’S payroll deductionS 281
Review exeRcises
Solve the following problems using
6.2%
, up to
$117,000
, for social security tax and
1.45%
,
no wage limit, for Medicare tax.
1. What are the withholdings for social security and Medicare for an employee with gross earnings
of
$825
per week?
2. What are the social security and Medicare withholdings for an executive whose annual gross
earnings are
$118,430
?
3. Brian Hickman is an executive with Westco Distributors. His gross earnings are
$9,800
permonth.
a. What are the withholdings for social security and Medicare for Brian in his January paycheck?
b. In what month will Brian’s salary reach the social security wage base limit?
c. What are the social security and Medicare tax withholdings for Brian in the month named
inpart b?
4. Kristy Dunaway has biweekly gross earnings of
$1,750
. What are her total social security and
Medicare tax withholdings for a whole year?
As the payroll manager for Freeport enterprises, it is your task to calculate the monthly social
security and Medicare withholdings for the following employees.
Employee
Year-to-Date
Earnings Current Month Social Security Medicare
9
Section ii
85461_ch09_hr_262-303_1.indd 281 9/23/15 4:50 PM
282 chapter 9 • payroll
Use the percentage method of income tax calculation to complete the following
payrollroster.
Employee
Marital
Status
Withholding
Allowances Pay Period
Gross
Earnings
Income Tax
Withholding
9. Randolph, B. M 2 Weekly $594 $27.90
Use the combined wage bracket tables, exhibits 9-3 and 9-4, to solve exercises 13–19.
13. How much combined tax should be withheld from the paycheck of a married employee earning
$1,075
per week and claiming four withholding allowances?
14. How much combined tax should be withheld from the paycheck of a single employee earning
$3,185
per month and claiming zero withholding allowances?
15. Jeremy Dunn is single, claims two withholding allowances, and earns
$4,025
per month.
Calculate the amount of Jeremy’s paycheck after his employer withholds social security,
Medicare, and federal income tax.
Employee
Marital
Status
Withholding
Allowances Pay Period
Gross
Earnings
Combined
Withholding
16. Alton, A. S 3 Monthly $4,633 $869.43
Complete worked-out solutions for
Exercises 9–12 appear in Appendix B.
BUsiNess DecisiON: TAke-hOMe PAy
20. You are the payroll manager for the Canyon Ridge Resort. Mark Kelsch, the marketing director,
earns a salary of
$43,200
per year, payable monthly. He is married and claims four withholding
allowances. His social security number is 444-44-4444.
In addition to federal income tax, social security, and Medicare, Mark pays
2.3%
state
income tax,
1
2%
for state disability insurance (both based on gross earnings),
$23.74
for term
life insurance,
$122.14
to the credit union, and
$40
to the United Way.
Fill out the following payroll voucher for Mark for the month of April.
Canyon Ridge Resort
Payroll Voucher
Primary Withholdings:Additional Withholdings:
end of November 2009, according to
in the
85461_ch09_hr_262-303_1.indd 282 9/23/15 4:50 PM
Section iii • employer’S payroll expenSeS and Self-employed perSon’StaxreSponSiBility 283
emPloyer’s Payroll exPenses and self-emPloyed
Person’s tax resPonsibility
To this point, we have discussed payroll deductions from the employee’s point of view.
Now let’s take a look at the payroll expenses of the employer. According to the Fair Labor
Standards Act, employers are required to maintain complete and up-to-date earnings records
for each employee.
Employers are responsible for the payment of four payroll taxes: social security, Medicare,
comPutinG fica tax for emPloyers and self-emPloyment
tax for self-emPloyed Persons
fica tax for employerS
Employers are required to match all FICA tax payments, both social security and Medicare,
9-8
12%
November 1982 10.8% October 2009 10.1%
December 2010 9.7%
Recession
Unemployment Peaks: The Post-World War II Jobless Rate
10
8
6
ExamplE13
computinG fica tax for employeeS
and the employer
Spectrum engineering has
25
employees, each with gross earnings of
$250
per week.
a. What are the total FICA (social security and Medicare) taxes that should be withheld from each
employee’s weekly paycheck?
Section iii
9
Review exeRcises
1. Westside Auto Supply has
8
delivery truck drivers, each with gross earnings of
$570
per week.
a. What are the total social security and Medicare taxes that should be withheld from these
employees’ paychecks each week?
b. What is the employer’s share of these taxes for these employees for the first quarter of
theyear?
2. Fandango Furniture Manufacturing, Inc., has
40
employees on the assembly line, each with gross
earnings of
$325
per week.
a. What are the total social security and Medicare taxes that should be withheld from the
employees’ paychecks each week?
b. What is the employer’s share of these taxes for these employees for the first quarter of the year?
2.9%
, and his estimated federal income tax rate is
18%
. How much estimated tax must
he send to the IRS each quarter?
SolutionStrategy
Note that Ben’s salary is above the social security wage base limit.
tryitexerciSe 17
Howard Lockwood is a self-employed freelance editor and project director for a large publishing
20%
9
Section iii
You may use your American Express card,
Discover card, MasterCard, or a debit
card to make estimated tax payments.
Call toll free or access by Internet one of
Dollars
and Sense
12.4%
Section iii • employer’S payroll expenSeS and Self-employed perSon’StaxreSponSiBility 289
3. Arrow Asphalt & Paving Company has
24
employees,
15
with gross earnings of
$345
per week
and nine with gross earnings of
$385
per week. What is the total social security and Medicare tax
the company must send to the Internal Revenue Service for the first quarter of the year?
4. What are the social security and Medicare taxes due on gross earnings of
$53,200
per year for
Tricia Marvel, a self-employed commercial artist?
5. What are the social security and Medicare taxes due on gross earnings of
$42,600
per year for a
self-employed person?
6. Lee Sutherlin is a self-employed electrical consultant. He estimates his annual net earnings at
$38,700
. How much social security and Medicare must he pay this year?
7. Barry Michaels earns
$36,500
per year as the housewares manager at the Home Design Center.
a. If the SUTA tax rate is
5.4%
of the first
$7,000
earned each year, how much SUTA tax must
the company pay each year for Barry?
b. If the FUTA tax rate is
6.0%
of the first
$7,000
earned in a year minus the SUTA tax paid,
how much FUTA tax must the company pay each year for Barry?
8. Dave O’Bannon earns
$41,450
annually as a line supervisor for Redwood Manufacturers.
a. If the SUTA tax rate is
5.4%
of the first
$7,000
earned in a year, how much SUTA tax must
Redwood pay each year for Dave?
b. If the FUTA tax rate is
6.0%
of the first
$7,000
earned in a year minus the SUTA tax paid,
how much FUTA tax must the company pay each year for Dave?
9. Tanya Willis worked part time last year as a cashier in a Safeway Supermarket. Her total gross
earnings were
$6,440
.
a. How much SUTA tax must the supermarket pay to the state for Tanya?
b. How much FUTA tax must be paid for her?
290 chapter 9 • payroll
10. Amazon Appliance Company has three installers. Larry earns
$355
per week, Curly earns
$460
per week, and Moe earns
$585
per week. The company’s SUTA rate is
5.4%
, and the FUTA rate
is
6.0%
minus the SUTA. As usual, these taxes are paid on the first
$7,000
of each employee’s
earnings.
a. How much SUTA and FUTA tax does Amazon owe for the first quarter of the year?
b. How much SUTA and FUTA tax does Amazon owe for the second quarter of the year?
11. Jiffy Janitorial Service employs
48
workers and has a gross payroll of
$25,200
per week. Fringe
benefits are
6.4%
for sick days and holiday leave,
5.8%
for health and hospital insurance, and
$14.50
per employee per week for uniform allowance.
a. What is the total weekly cost of fringe benefits for Jiffy?
b. What percent of payroll does this represent?
c. What is Jiffy’s annual cost of fringe benefits?
12. North Beach Limousine Service employs
166
workers and has a gross payroll of
$154,330
perweek. Fringe benefits are
41
2%
of gross payroll for sick days and maternity leave,
7.4%
for
health insurance,
3.1%
for the retirement fund, and
$26.70
per employee per week for a stock
purchase plan.
a. What is the total weekly cost of fringe benefits for the company?
b. What percent of payroll does this represent? Round to the nearest tenth of a percent.
c. What is the company’s annual cost of fringe benefits?
Section iii • employer’S payroll expenSeS and Self-employed perSon’StaxreSponSiBility 291
13. Marc Batchelor, a self-employed sales consultant, has estimated annual earnings of
$300,000
this
year. His social security tax rate is
12.4%
up to the wage base, Medicare is
2.9%
, and his federal
income tax rate is
24%
.
a. How much estimated tax must Marc send to the IRS each quarter?
b. What form should he use?
claSSroom activity
Have students research and
report to the class about
“cafeteria” plans and popular
fringe benefits being offered
by companies today.
BUsiNess DecisiON: New FRiNGe BeNeFiTs
14. You are the human resource manager for Sunlink International, a cellular phone company
with
800
employees. Top management has asked you to implement three additional fringe
benefits that were negotiated with employee representatives and agreed upon by a majority
of the employees. These include group term life insurance, a group legal services plan, and a
wellness center.
The life insurance is estimated to cost
$260
per employee per quarter. The legal plan will
cost
$156
semiannually per employee. The company will contribute
40%
to the life insurance
premium and
75%
to the cost of the legal services plan. The employees will pay the balance
through payroll deductions from their biweekly paychecks. In addition, they will be charged
1
4
%
of their gross earnings per paycheck for maintaining the wellness center. The company will pay
the initial cost of
$500,000
to build the center. This expense will be spread over 5 years.
a. What total amount should be deducted per paycheck for these new fringe benefits for an
employee earning
$41,600
per year?
b. What is the total annual cost of the new fringe benefits to Sunlink?