Payroll Cost Calculations

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  • 0:01 Payroll
  • 0:38 New & Gross Pay
  • 1:36 Overtime
  • 3:02 Deductions
  • 4:24 Example
  • 5:42 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

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 $480
2 hours overtime pay $36

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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