Question

Calculate Payroll

Breakin Away Company has three employees—a consultant, a computer programmer, and an administrator. The following payroll information is available for each employee:

	Consultant		Computer Programmer		Administrator
Regular earnings rate	$4,000 per week		$60 per hour		$50 per hour
Overtime earnings rate*	Not applicable		1.5 times hourly rate		2 times hourly rate
Number of withholding allowances	2		1		2
*For hourly employees, overtime is paid for hours worked in excess of 40 hours per week.

For the current pay period, the computer programmer worked 50 hours and the administrator worked 48 hours. The federal income tax withheld for all three employees, who are single, can be determined from the wage bracket withholding table in Exhibit 2. Assume further that the social security tax rate was 6.0%, the Medicare tax rate was 1.5%, and one withholding allowance is $75.

Determine the gross pay and the net pay for each of the three employees for the current pay period. If required, round your answers to two decimal places.

	Consultant	Computer Programmer	Administrator
Gross pay	$4,000	$3,300	$2,800
Net pay	$	$	$

Answer 1

Calculating payroll for the three employees of Breakin Away Company

Payroll must be calculated on an individual basis according to hours worked and terms of salary. Some individuals will qualify for overtime based upon their agreed terms, while others will not. Taxes and withholding allowances are calculated using the individual's wages and marital status.

To determine the gross pay and net pay of any individual we need to understand the difference between them.

Gross pay is the total amount such as salary, wages, commissions, overtime, bonus paid by the employer to an employee in eaach pay period is called gross pay whereas Net pay is the remaining amount of gross pay after all the deductions company made.

	Consultant	Computer Programmer	Administrator
Gross pay	$4,000	$3,300	$2,800
Net pay	$2,760.5	$2,295	$1,994

Explanation:

As the gross pay for the consultant is given, we will see the calculation for gross pay of computer programmer and administrator.

Gross pay of computer programmer = $60*40hrs + $60*10hrs*1.5 (overtime) = $2400+$900 = $3300

Gross pay of administrator = $50*40hrs + $50*8hrs*2 (overtime) = $2000+$800 = $2800

Now we need to calculate the net pay of all of them.

1. Net pay of Consultant

Withholding social security tax = 6% of $4,000 = $240

Withholding medicare tax = 1.5% of gross salary = 1.5% of $4,000 = $60

The amount subject to withholding = Gross earnings- wihholding allowances = $4,000- ($75*2 allowances) = $3,850

Federal income tax withheld = $890.02 + [ 33% ( $3,850 - $3,700 ) = $939.52

Net pay = Gross pay - Total withholding = $4,000 - ($939.52+$240+$60) =$2760.48

2. Net pay of Computer programmer

Withholding social security tax = 6% of $3,300 = $198

Withholding medicare tax = 1.5% of gross salary= 1.5%of $3,300 = $49.50

Amount subject to withholding = Gross earnings - withholding allowances = $3,300 - ( $75*1 allowance) = $3,225

Federal income tax withheld = $356.90 + [ 28% ($3,225 -$1,796) = $757.02

Net pay = Gross pay - Total withholding = $3,300 - ($757.02+$198+$49.50) = $2,295.48

3. Net pay of Administrator

Withholding social security tax = 6% of $2,800 = $168

Withholding medicare tax = 1.5% of gross salary = 1.5% of $2,800 = $42

Amount subject to withholding - Gross earnings - withholding allowances = $2,800 - ($75*2 allowance) = $2,650

Federal income tax withheld = $356.90 + [ 28% ($2,650- $1,796) = $596.02

Net pay = Gross pay - Total withholding = $2,800 - ($596.02-$168-$42) = $1993.98