MATHEMATICS OF FINANCE
303203
Chapter – III
PAYROLL
Dr. Karthik Mohandoss
1. Payroll
The term "payroll" has several meanings. It can be the amount of money paid to all employees in
a payday, the financial records of a company relating to the payment of wages and salaries to
employees, or the total record of earnings of all employees for a year.
Definition:
The term payroll has several different meanings:

The distribution of paychecks (physical or electronic) to employees each payday, The
financial records for employee wages/salaries, withholding, deductions, bonuses, pay for time
not worked (holidays, vacations, sick time, etc.) and other items on employee paychecks.

It can also mean the record of total earnings of all employees for a company in a fiscal year.
2. Gross Pay
Gross pay is the total paid to an employee each pay period. For hourly employees, gross pay is
pay rate times hours worked.
Gross Pay is the total amount paid to an employee each pay period. Gross pay includes regular
pay, overtime pay, and other taxable earnings (such as reimbursements).
Here is how gross pay is calculated:
Hourly Gross Pay
Hourly gross pay is calculated by multiplying the number of hours worked in the pay period
times the hourly pay rate. Overtime pay is also included in the gross pay calculation.
Salaried Gross Pay
Gross pay for salaried employees is calculated by dividing the total annual pay for that
employee by the number of pay periods in a year. For example, if a salaried employee's annual
pay is $30,000, and he or she is paid twice a month, the gross pay for each of the 24 pay
periods is $1250.
3. Net Pay
Net pay is the amount of pay an employee receives after all withholding and deductions from
gross pay. In other words, net pay is the amount of the employee's paycheck.
Net Pay is an employee's pay after deductions and withholding. Net pay is calculated by
determining gross pay and subtracting:

Federal withholding

Any State withholding

Social Security and Medicare deductions

Any other voluntary deductions, such as insurances or charitable donations which the
employee has agreed to.
An employee's net pay is the amount of his or her paycheck.
4. Withholding
Withholding refers to amounts taken from an employee's paycheck for federal and state income
taxes.
Withholding is the act of deducting amounts from an employee's salary to fulfill government
requirements or for causes approved by the employee.
5. Overtime
Overtime is the additional amounts paid to hourly employees who work over 40 hours in a week,
who work on weekends, or other additional amounts. The minimum overtime requirement is that
overtime must be paid at 1 1/2 times pay rate for employees who work more than 40 hours in a
work week. Of course, you can pay overtime at higher rates.
Overtime is the additional amounts paid to hourly employees who work more than 40 hours in a
workweek. Law requires that hourly employees who work more than 40 hours in a workweek
must be paid at a higher rate for the overtime hours, at a minimum of 1 1/2 times the employee's
regular pay rate.
How Overtime is Calculated and Paid
Overtime Pay is the amount of overtime paid to each employee in a pay period. Overtime pay is
calculated: Hourly pay rate x 1.5 x overtime hours worked.
Here is an example of total pay for an employee who worked 42 hours in a workweek:

Regular pay rate x 40 hours = Regular pay, plus

Regular pay rate x 1.5 x 2 hours = Overtime pay, equals

Total pay for the week.
A business may pay overtime at a higher rate or it may pay overtime before 40 hours (at 35 hours
a week, for example), but the minimum is 1.5 times regular pay after 40 hours in a workweek.
Employees may be paid more than the minimum required rates for overtime. Some employers,
for example, pay "double time" for holidays. Overtime pay is not required for night, holiday, or
weekend work; these rates are determined by the employer or by union contracts.
Some Employees Exempt from Overtime
Because of the nature of their work, some employees are considered to be exempt from receiving
overtime pay. In order to be classified as exempt, an employee must have specific types of job
duties. The Fair Labor Standards Act (FLSA) recognizes executive, administrative, professional,
outside sales, and some computer employees as exempt. Exempt classification is on a case-bycase basis and is not based on the job title of the employee.
6. Work Week
A work week is considered as 168 consecutive hours of work in a seven-day period. This term is
used is calculating overtime.
7. Pay Period
A pay period is a recurring length of time over which employee pay is recorded and paid. Some
common pay periods are monthly, weekly, bi-weekly (every other week) and semi-monthly
(twice a month). A bi-weekly pay period results in 26 pay periods in a year, while semi-monthly
pay results in 24 pay periods in a year. The difference is important in computing total pay for
employees for a year.
A pay period is a recurring length of time over which employee time is recorded and paid.
Examples of pay periods are: weekly, bi-weekly, semi-monthly, and monthly.

A weekly pay period results in 52 paychecks in a year

A bi-weekly (every other week) pay period results in 26 paychecks in a year

A semi-monthly (twice a month) pay period results in 24 paychecks in a year

And a monthly pay period results in 12 paychecks in a year.

The number of paychecks in a year is an important distinction in calculating total gross pay for
a year.
***ALL THE BEST***
PAYROLL EXERCISE-1
1. David worked 36 ½ hours last week at an hourly rate of $8.00.Find the gross pay.
2. For the following employees of the honey well advertising company, determine the total hours
worked and the gross pay, to the nearest cent.
NAME
Sun
Mon
Tue
Wed
Thu
Hourly rate
Sam
7½
7½
7½
7½
7½
$8.50
Walter
6½
5
4
3
7½
$6.70
Ali
8
3½
8
4
0
$8.20
Kenny
7
5
2½
8
6
$7.20
3. John received $308 gross pay for 28 hours worked. What is the hourly rate?
4. David worked for the following hours during the week
Sun
Mon
Tue
Wed
Thu
8
9
8½
10
7½
Calculate the gross pay at a hourly rate of $6 plus time and a half for any work hours over 40
per week.
5. At Oman flour mill the employees are paid an hourly rate of OMR 2.5 plus time and a half for
any hours worked over 8 hrs per day. Find the gross pay for the time card shown
Sun
Mon
Tue
Wed
Thu
9
6½
8
10
7½
6. Determine the salary per pay period, assuming that an employee receives $25,000 per year and
is paid monthly?
***ALL THE BEST***
PAYROLL EXERCISE-2
1. R. Jones is has a taxable income of $32,000 and has federal income tax of 10%, voluntary
deduction $1000 towards insurance, $500 towards charity trust. Determine the net pay
amount of Mr. Jones.
2. The gross pay of Mr. Chandler is $7500/per month, calculate the net pay with the help of
furnished information.
a. The state withholding is 4%
b. The federal tax is 6%
c. Medical insurance deduction 2%
3. Calculate the amount of single pay period for Mr. Jerry, if he is paid $87000 bimonthly
and find out the net pay with the furnished information.
a. 3% for social security
b. 2.3% for charity
4. Nicole earns $36,000 a year. If she is paid on a weekly basis,
a. What is her gross pay per week?
b. What if she is paid on a semimonthly basis?
5. Marisa is a restaurant supplies salesperson and receives 6% of her total sales as
commission. Her sales totaled $12,000 during a given week. Find her gross earnings.
6. Melanie Brooks works for a cosmetics company and earns $200 a week in salary plus
30% commission on all sales over $500. If she had sales of $1,250 last week, how much
were her total earnings?
7. Jorge assembles microchip boards. He is paid on a differential piecework basis.
Rates are as follows:
From 1-100
-
$1.32 per board
From 101-300 -
$1.42 per board
301 and over -
$1.58 per board
If he assembles 317 boards how much will he earn?
8. Jillian gets paid a differential piece rate for each shirt she sews. Consult the chart below
and calculate her weekly earnings if she sewed 352 shirts last week.
From 1-100:
$0.47 each
From 101-300:
$0.60 each
301 and above:
$0.70 each
What were her earnings?
9. Dollies Calloway’s biweekly gross earnings are $3,150. She is single. Find the net
income by using the given specifications.
a. 3% is taxed for married and 5% for unmarried persons towards federal tax.
b. $100 towards loan received
c. 2.6% towards social security.
***ALL THE BEST***