Amy has a master's degree in secondary education and has taught math at a public charter high school.
Watch this video lesson to learn how the money you earn from a job, your paycheck, is calculated based on the number of hours you have worked. Also learn how taxes are calculated as well as overtime pay.
What you call a paycheck from your work, the company calls its payroll. Your paycheck is one of the many that the company processes when it does its payroll. Each employee gets a paycheck. This paycheck is a check for your wages. Your paycheck also includes a breakdown of how your wage is calculated. It includes things like hours worked, your net pay, your gross pay, overtime pay, and taxes deducted. In this video lesson, we will take a closer look at these items.
Net Pay and Gross Pay
The first item we will discuss is the gross pay, your wage before any deductions are taken. This is not the amount you are getting paid, but the amount that you earned before taxes are taken out. Your gross pay is calculated by multiplying the hours you worked by how much you are getting paid. Your gross pay also includes any bonuses or overtime that you worked.
For example, if you worked 20 hours at $12/hour, your gross pay will be 20 x $12 = $240. On the check itself, you won't see $240. Instead, you will see your net pay, the amount you get after all the deductions are taken. For example, if your deductions totaled $80, then your net pay will be $240 - $80 = $160.
If you worked overtime, you will also see this included in your gross pay. Overtime is the time you worked over 40 hours a week. If you worked 42 hours one week, you would get 2 hours of overtime pay. Most companies offer pay and a half for overtime hours. What this means is that they will pay you your wage multiplied by 1.5. So, if you earned $12/hour normally, your overtime pay will be $12 x 1.5 = $18/hour. For two overtime hours, your overtime pay will be 2 x $18 = $36. As you can see, you earn quite a bit more for overtime hours.
On your paycheck, you will normally see your regular hours up to 40 hours a week listed on one line, and then on the next line, you will see your overtime hours. If you worked 42 hours one week, you will see it listed like this:
40 hours regular pay
2 hours overtime pay
40 hours at $12/hour is 40 x $12 = $480, and 2 hours at $18/hour is 2 x $18 = $36. If you received bonuses or anything else extra, you will see these listed on other lines.
Next, you will see your deductions such as taxes and other deductibles. Your taxes are based on how much you earn. The government has a tax table that companies refer to when calculating how much taxes to take out. This tax table shows what percentage to take out depending on how much is earned. For example, it might say that because you earn $12/hour, your tax rate is 15 percent. This means that 15 percent of your gross pay will be deducted as taxes. Remember that your gross pay includes your regular pay and overtime pay plus any bonuses and extras.
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If you worked 42 hours, your gross pay is $480 + $36 = $516. 15 percent of this is $516 x 0.15 = $77.40. The tax is calculated by multiplying the gross pay by the tax rate percentage as a decimal. Your net pay then is found by subtracting the tax and other deductibles from the gross pay. Our net pay is $516 - $77.40 = $438.60. This net pay is the amount that your check is written for.
Let me give you another sample scenario. See if you can calculate the gross pay, the tax, and then the net pay.
Sam gets paid $10/hour. One week he works 43 hours. His tax rate is 12 percent. Calculate his gross pay, his taxes, and his final net pay.
Sam worked 43 hours, so that means he worked 40 regular hours and 3 overtime hours. When he works overtime, he gets paid $10 x 1.5 = $15/hour. 40 regular hours at $10/hour is 40 x $10 = $400, and 3 hours of overtime is 3 x $15 = $45. The gross pay is $400 + $45 = $445. The taxes then is $445 x 0.12 = $53.40. The net pay is $445 - $53.40 = $391.60. Sam's check will be for $391.60.
Let's review what we've learned. When a company does payroll, it is preparing paychecks for its employees. Each paycheck lists the gross pay, your wage before any deductions are taken, overtime, hours worked over 40 hours a week, any taxes and other deductibles, and then the net pay, the amount after all deductions have been taken.
The net pay is the amount that the check is made out for. The gross pay is calculated by multiplying your pay rate by the number of hours worked. Overtime pay is usually your pay rate multiplied by 1.5. Taxes are calculated by multiplying the gross pay by the tax rate percentage. The net pay is calculated by subtracting taxes and other deductibles from the gross pay.
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