Payroll Basics
Gross pay, overtime, deductions, and pay periods, using stated made-up rates.
Pen and paper is fine · no calculator needed why?
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the idea
Gross pay is what an employee earns before anything is taken out. Net pay is what reaches their bank account after withholdings (taxes held back) and deductions like health insurance. Real rates vary by place and change over time, so the rates here are always stated as assumptions.
Hourly pay is hours times the rate, and overtime hours earn a higher rate. A salary is a yearly amount. A full-time year counts as 2,080 hours (40 hours × 52 weeks), and the salary is split across a set number of paychecks.
techniques
Regular hours, then overtime
- Pay up to 40 hours at the regular rate.
- The overtime rate is the rate times 1.5.
- Pay only the hours over 40 at that rate, then add.
worked example
An employee earns $18 an hour and works 44 hours this week. Assume hours over 40 are paid at 1.5 times the rate. What is gross pay?
- Regular: 40 × $18 = $720.
- Overtime rate: $18 × 1.5 = $27.
- Overtime: 4 × $27 = $108.
- Gross: $720 + $108 = $828.
Answer: $828
Gross down to net
- Taxes withheld are gross pay times the percent.
- Subtract the taxes and every fixed deduction from gross pay.
worked example
Gross pay is $1,500. Assume 10% of gross pay is withheld for taxes, plus $50 for health insurance. What is net pay?
- Taxes: $1,500 × 0.1 = $150.
- Net: $1,500 − $150 − $50 = $1,300.
Answer: $1,300
Divide by the right count
- Hourly: divide the salary by 2,080.
- Per paycheck: weekly is 52 paychecks, every two weeks 26, twice a month 24, monthly 12.
worked example
An annual salary of $48,000 is paid twice a month. What is gross pay per paycheck?
- Twice a month is 24 paychecks.
- Per paycheck: $48,000 ÷ 24 = $2,000.
Answer: $2,000
watch out for
- Paying every hour at the overtime rate, or none of them. Only the hours over 40 earn it.
- Forgetting the fixed deduction after taking out the taxes.
- Dividing a salary by 52 to get an hourly rate. That gives weekly pay.
- Mixing up every two weeks (26 paychecks) with twice a month (24).
practice
Gross pay with overtime
worked example
An employee earns $28 an hour and works 42 hours this week. Assume hours over 40 are paid at 1.5 times the rate. What is gross pay?
Answer: $1,204.00
- Regular: 40 × $28 = $1,120. Overtime: 2 × $42 = $84.
- Total: $1,120 + $84 = $1,204.
Net pay after deductions
worked example
Gross pay is $3,050. Assume 10% of gross pay is withheld for taxes, plus $190 for health insurance. What is net pay?
Answer: $2,555.00
- Taxes: $3,050 × 10% = $305.
- Net pay = $3,050 − $305 − $190 = $2,555.
Salary to hourly
worked example
A salary of $86,320 a year for a 40-hour week is how much per hour? (Use 2,080 hours a year: 40 × 52.)
Answer: $41.50
- $86,320 ÷ 2,080 = $41.50 an hour.
- Quick check: halve the salary and drop three zeros: about $43.
Pay per paycheck
worked example
An annual salary of $33,280 is paid weekly (52 paychecks a year). What is gross pay per paycheck?
Answer: $640.00
- $33,280 ÷ 52 = $640 per paycheck.