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Getting Paid: Understanding Employment and Payroll Basics

This advanced level guide covers the primary sources of employment, differences between employee and employer, salary vs. hourly wages, payment methods, payroll deductions, income and payroll tax deductions, Form W-4, Social Security, Medicare, optional payroll deductions, completing Form I-9, W-2 forms, pay stubs, gross and net income calculation, reading a pay stub, payroll withholdings, and reviewing paychecks for accuracy.

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Getting Paid: Understanding Employment and Payroll Basics

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  1. Getting Paid Advanced Level

  2. What are the two primary sources of employment? What is the difference between an employee and an employer?

  3. Salary vs. Hourly Would you rather be paid a salary or hourly wage?

  4. What methods do employers use to pay employees?

  5. Paper Paycheck and Direct Deposit What are the pros and cons of each method?

  6. Payroll Card What method of payment would be best for you?

  7. How often will I get paid? Monthly? 12 pay periods a year

  8. Payroll deductions Mandatory Optional

  9. What are the five main types of taxes? Withheld from wages Paid at the time of purchase

  10. Why are income and payroll taxes deducted from wages? By paying income & payroll taxes with every paycheck you earn, this helps manage your personal tax liability on an ongoing basis (your total tax bill) And so on, until the end of year – total tax liability due Beginning of year

  11. What are the mandatory income and payroll tax deductions?

  12. Federal Income Tax How do you benefit from paying federal income taxes? Largest required deduction

  13. What is a Form W-4? Determines the percentage pay that will be deducted for federal income taxes

  14. Form W-4 Allowances

  15. Allowances Individuals may change their Form W-4 at any time

  16. State Income Tax Does your state have state income tax?

  17. What is Social Security? • Income for: • Retirees • People with profound disability • Children who have lost a parent • A person with children who has experienced the death of a spouse • 6.2% • Up to an annual maximum • Paid by each worker and matched by employer

  18. What is Medicare? • Helps pay for health care for individuals 65 and older • 1.45% • No limit • Paid by each worker and matched by each employer

  19. What are optional payroll deductions? Employee will typically pay much less than privately purchasing that same benefit.

  20. How Employers Further Support Employees Both required at no cost to the employee

  21. How Employers Further Support Employees

  22. I-9 must be completed What forms of ID do you have to complete the I-9? Completing a Form I-9 • Used to prove citizenship • Must provide at least 2 of the following • passport • driver’s license • U.S. military card • Social Security card • birth certificate

  23. W-2 is completed at the end of the tax year How many businesses in our community advertise to help with this process? Form W-2 (Wage and Tax Statement) States the amount of money earned and taxes paid throughout the previous year Used to file income taxes by April 15th Individuals may be exempt from filing federal withholdings if they make less than a certain amount per year

  24. What is a pay stub? Why is it important to review your pay stub? Pay stub - outlines the deductions made to wages

  25. Pay Stub

  26. Pay Stub Why is the pay period different than the pay date?

  27. Pay Stub Gross income Net income

  28. Pay Stub

  29. Pay Stub What are examples of deductions?

  30. Pay Stub What contributions are included?

  31. Pay Stub

  32. Number of hours worked If a person earns an hourly wage, gross income is calculated by multiplying the number of hours worked by the wage Wage What is the gross income if an employee works 15 hours at an hourly wage of $9.50? Gross Income

  33. Reading a Paycheck Stub • Payroll Deductions: • Items deducted from gross pay. Typically around 30%. • Typically include: • Federal withholding • State withholding • FICA

  34. Reading a Paycheck Stub Deductions this pay period Accumulated deductions for the year

  35. Reading a Paycheck Stub Net Income: The check amount that is often referred to as the take home pay.

  36. Net Income The amount left after all payroll deductions have been taken from gross income Often referred to as “take home” pay

  37. Net Income Payroll Withholdings • Gross Income $180.00 • Payroll Withholdings: • Federal Withholding Tax $14.10 • State Withholding Tax $5.45 • FICA $13.77 • What is her Net Income? Net Income $180.00 – ($14.10 + $5.45 + $13.77) = $146.68

  38. Review each pay period • It is important to review each paycheck stub to identify any possible mistakes! • If a mistake is found, contact the employer immediately

  39. Can an employer pay employees in cash? Ensure employer is deducting income and payroll taxes from wages paid in cash Consult a tax professional to determine if you should pay taxes on cash earned.

  40. Summary

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