Salaries
A salary is a fixed annual amount paid to an employee. This amount is usually split up into monthly or fortnightly payments. The amount paid is fixed, i.e. it does not change based on the number of hours worked by the employee. Salaries are usually paid to employees that work ‘full time’ for an employer i.e., those that are in continuous and long-term employment with an employer.
Workers that earn salaries include government workers, police officers and teachers.
Example 1: Leela is a government worker who earns a weekly salary of $40,384.62. What is her annual salary?
Since a year is 52 weeks, we simply multiply the weekly salary by the number of weeks:
Annual salary= $40,384.62 x 52
= $2,100,000.24
Wages
A wage is a payment made to an employee at an hourly rate. Hence, a person's wage is based on the number of hours of hours worked. Wages are usually paid to persons employed 'part-time' or 'casually,' meaning they are not employed permanently or long-term.
Workers that earn wages include cashiers, waiters, etc.
The average work week is 40 hours.
Example 2: A cashier is paid at a rate of $1020 per hour. How much are they paid for a 20 hour work week?
Wage= hourly rate x number of hours
= $1020 x 20
= $20400
Overtime Earnings
We already know that wage is calculated by multiplying the hourly rate by the number of hours worked. However, a worker may earn additional cash on top of their normal wages by working beyond normal working hours or at unfavourable times (eg public holidays, weekends, overnight).
When working overtime, employees are paid at a higher hourly rate known as the overtime rate. This increased hourly rate of pay is to compensate for the hours worked outside of normal working hours.
Overtime rates can be different based on the policy of a certain employer. An overtime rate can be paid at time and a quarter (1.25 times the normal hourly rate), time and a half (1.5 times the normal hourly rate), double time (2 times the normal hourly rate) or triple time (you get the point).
Example 3: Calculate Jim's overtime rate if he works a normal hourly rate of $2350 and overtime is paid at time and a half.
Overtime Rate = 1.5 x $2350
= $3525 per hour
Sometimes, you will be asked to find a person's total wages considering that they worked a full normal work week in addition to overtime.
Example 4: Pam works 52 hours in a week. Considering that a normal work week is 40 hours paid at $1470 per hour and overtime is paid at time and a quarter, what is her total wages for this week?
Total Weekly Wages = Normal Wages + Overtime Wages
First, we find the total earned during the normal 40 hour week.
Normal Wages = $1470 x 40
= $58800
We calculate the number of overtime hours:
Overtime hours = 52 -40
= 12 hours
This leaves us with 12 hours of overtime. We then calculate the overtime rate:
Overtime Rate = 1.25 x $1470
= $1837.50
Now, we find the total overtime wages:
Overtime wages = 12 hours x $1837.50
= $22050
Total Weekly Wages = $58800 + $22050
= $80850
Commissions
This form of payment is mainly for sales people, real estate agents, etc., where they earn a commission based on a percentage of the value of goods sold.
Example 5: Dwight is a paper salesman who earns a 15% commission on every ream of paper he sells. This month, the total value of the reams of paper he sold amounts to $1,200,000. What is his commission earnings?
Commission = 0.15 x $1,200,000
=$180,000
Gross and Net Pay
Gross Pay is the total amount of money that an employee earns. Net Pay, however, also known as real/disposable income, is the amount of money an employee has remaining after taxes and other statutory/voluntary deductions.
There can be several deductions, some of which are:
retirement fund contributions
private health insurance contributions/installments
corporate/union fees
direct debit for bills
savings, etc.
Net Pay is calculated like this:
Net Pay = Gross Pay – Tax – Other deductions.
(This Sunshine Maths site has a lot more examples and concepts relating to financial maths, salaries and wages)