Chapter 6Payroll

Section 2Gross Earnings: Piecework and Commissions

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Find the Gross Earnings for Piecework

• Time Rates: salaries and wages that depend on actual time on the job

• Incentive Rates: pay is based on production and actual performance on the job

• Piecework Rate: pays a given amount per item produced

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Gross Earnings

Gross Earnings =

Pay per item × Number of items

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Incentive Rates of Pay

Piecework rates:

43 cpm

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Piecework and hourly rates

Incentive Rates of PayCommission Pay

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Incentive Rates of PayCommission Pay

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Example 1

Stacy Arrington is paid $.73 for sewing a jacket collar, $.86 for a sleeve with cuffs, and $.94 for a lapel. One week she sewed 318 jacket collars, 112 sleeves with cuffs, and 37 lapels. Find her gross earnings.

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Example 1 - SolutionMultiply the rate per item by the number of that type of item.

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Find the gross earnings by adding the three totals from the table.

$232.14 + $96.32 + $34.78 = $363.24

Determine the Gross Earnings for Differential Piecework

• Quotas

– Certain number that must be met

– Premium for each item produced beyond quota

• Added incentive within an incentive

• Example: rate paid per item depends on the number of items produced

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Example 2Suppose Metro Electric pays assemblers as follows:

1–100 units $2.10 each

101–150 units $2.25 each

151 or more units $2.40 each

Find the gross earnings of a worker producing 214 units.

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Example 2 - Solution

214

–100 100 units at $2.10 each = $210.00

114

– 50 50 units at $2.25 each = $210.00

64 64 units at $2.40 each = $210.00

214 units = $476.10

The gross earnings are $476.10.

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Find the Gross Pay for Piecework with a Guaranteed Hourly Wage• Piecework and differential piecework

rates are frequently modified to include a guaranteed hourly pay rate.

• Often necessary to satisfy federal and state laws concerning minimum wages.

• Employer must pay either the minimum wage or the piecework earnings, whichever is higher.

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Example 3A tire installer at the Tire Center is paid $10.50 per hour for an 8-hour day or $1.15 per tire installed, whichever is higher. Find the weekly earnings for an employee having the following rate of production.

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Example 3 - Solution

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Calculate the Overtimefor Piecework

• Piecework employees, like other workers, are paid time and a half for overtime.

• It is common for the overtime rate to be 1½ times the regular rate per piece.

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Example 4Eugene Smith is paid $.98 per child’s tricycle assembled. During one week, he assembled 480 tricycles on regular time and 104 tricycles during overtime hours. Find his gross earnings for the week if time and a half per assembly is paid for overtime.

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Example 4 - Solution

Gross earnings =

Earnings at regular piece rate +

Earnings at overtime piece rate

= 480 × $.98 + 104 × (1.5 × $.98)

= $460.40 + $152.88

= $623.28

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Commission Rate

A commission rate pays a salesperson either a fixed percent of sales or a fixed amount per item sold. Commissions are designed to produce maximum output from the salesperson, since pay is directly dependent on sales.

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Find the Gross Earnings Using Commission Rate Times Sales

Straight commission: the salesperson is paid a fixed percent of sales.

Gross Earnings =

Commission rate × Amount of sales

Before the commission is calculated, any returns from customers, or any allowances, such as discounts, must be subtracted from sales.© 2012 Pearson Education, Inc. 6.1- 19

Example 6

Amanda Roach, a food-supplements sales representative, had sales of $10,230 one month, with returns and allowances of $1120. If her commission rate is 12%, find her gross earnings.

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Example 6 - Solution

The returns and allowances must first be subtracted from gross sales. Then multiply the difference, net sales, by the commission rate.

Gross earnings

= ($10,230 – $1120) × 12%

= $9110 × .12

= $1093.20© 2012 Pearson Education, Inc. 6.1- 21

Determine a Commission Using the Variable Commission Rate

Sliding scale or variable commission: method of pay is designed to retain top-producing salespeople

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Example 7

Maureen O’Connor sells food and bakery products to businesses such as Starbucks and is paid as follows based on monthly sales.

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Example 7 - Solution

$32,768

– 10,000 $10,000 at 6% = $600.00

$22,768

– 10,000 $10,000 at 8% = $800.00

$12,768 $12,768 at 9% = $1149.12

total commissions: $2549.12

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Find the Gross Earnings with a Salary Plus Commission

Salary plus commission: the salesperson is paid a fixed sum per pay period, plus a commission on all sales.

Gross earnings

= Fixed amount per pay period +

Amount earned on commission

Draw: income that is an earning advance (which is a loan against future commissions)© 2012 Pearson Education, Inc. 6.1- 25

Example 8

Jaime Bailey is paid $325 per week by Beverly’s Creations, plus 3% on all sales over $500. During one week, her total sales were $2972. Find her gross earnings.

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Example 7 - Solution

Gross earnings =

Weekly salary + 3% on sales above $500

= $325 + .03($2972 – $500)

= $325 + (.03 × $2472)

= $325 + $74.16

= $399.16

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