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2 How People Are Paid

How People Are Paid From Work To Wages

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Summary Most people head to their jobs each day with at least one main goal: to earn money. This program examines the different types of work people do and how they get paid for it, as well as the role of payroll deductions, and how payroll tax deductions are utilized. Key points:

• Discover the factors that affect how and how much a person is paid.

• Learn various compensation terms and styles, and how they are associated with different businesses and industries.

• Understand different types of wages and benefits.

• Consider the role government plays to ensure fair wages, and the role unions play in

negotiating pay increases and job benefits.

• Examine payroll deductions, including taxes and the W-4 form.

• Know for what purposes tax money may be used, when income tax forms should be filed, and important facts about the W-2 form.


Introduction Why do People Work? Some people may work to hold a place for themselves in society or to form social bonds, or to have enough money to allow them to live a life of their own choosing. Most, however, have one main motivation: to earn money so they can buy the things they need. Not everyone earns that money in the same way. How did we come to expect money in exchange for our labor? As societies developed, people traded with each other to get the things they needed, often exchanging the items produced by their work. A carpenter skilled at wagon building, but without workable land, made ox-carts for the farmer, who used them to bring in wheat from the fields. In return, the farmer provided the carpenter with enough wheat to feed his family for the winter. Barter could be complicated, though, as people often assigned different values to their goods and services. With the needs of the community constantly changing, there wasn’t always an opportunity for a fair exchange: what if the farmer didn’t need a new cart this season? To offset uncertainty and encourage trade, societies introduced money. Assigning a firm, consistent value to each monetary unit created an exchange system that was easily understood and accepted by everyone. Today, people use money to buy the things they need, and they earn that money in return for their labors or the products they create. Getting Paid for Work: How, How Much and for What? How much someone earns depends on a number of factors, such as the kind of job they are doing and how much experience, education or skill a person has. Pay rates often depend on how difficult it is to find the right person to fill a job – the harder it is, the more an employer may be willing to pay a person to fill that open position. There are a variety of ways people are paid, or compensated. To receive compensation means to obtain something--such as wages and other financial benefits--in return for work.


Government Regulation and the Minimum Wage A Brief History Hourly workers receive a set amount of money for each hour they work. They generally receive no less than the standard minimum wage, which is regulated by the federal government. The term minimum wage refers to the lowest hourly wage that employers may legally pay to their workers. Typically, unskilled or semi-skilled workers benefit from the minimum wage. These workers are often found in service industries or manufacturing plants. The government did not always regulate wages. In fact, until the 1930’s, employers could pay their workers any rate they chose. But in 1938, President Franklin Roosevelt, with help from some labor unions, succeeded with a proposal for the first minimum hourly wage: 25 cents per hour.

The minimum wage became part of a law called the Fair Labor Standards Act, or FLSA, which still helps protect workers today.

Since the 1930s, the minimum wage has been raised many times in an attempt to keep up with the rising prices.

A minimum wage is different than a “living wage” which refers to a pay rate that is high enough for the worker and their family to survive and remain healthy and comfortable, sometimes called meeting basic needs. The government does not mandate that employer’s pay a living wage.

The Fair Labor Standards Act, or FLSA established the minimum wage. The FLSA is designed to protect workers employed by private companies and those who work for most government agencies.

Some states and cities also have their own minimum wage. When federal and state minimum wage amounts disagree, the higher wage is always the one that is enforced.

The FLSA also sets standards for overtime pay, which affects most hourly workers.


Types of Compensation Hourly with Overtime The FLSA currently sets overtime pay at rate of one-and-a-half times of the employees’ regular hourly rate. That overtime rate goes into effect after an employee works more than 40 hours in a week.

Here's a sample of how overtime pay is calculated. Mike, an ironworker, is paid by the hour. After putting in the regular 40 hours for the week, ironworkers qualify for overtime pay. Here's how Mike's overtime pay is calculated for a week when he works 42 hours:

Mike regularly earns $17.00 per hour. For his first 40 hours of work this week, Mike earns $680. For the additional 2 hours, Mike qualifies for the “time-and-a-half” rate for each hour. $17 x 1.5 = $25.50 per hour. $25.50 x 2 hours = $51. So for a 42-hour workweek, Mike earns $680 + $51, or $731.

Piece Rate In some industries, companies compensate employees for each piece of work they do, not by the hour. In garment manufacturing, for instance, workers may be paid for each piece of clothing they work on.

The FLSA allows employers to pay workers on a piece-rate basis, but only if the workers’ pay adds up to at least as much as the current minimum wage.

Tips and Gratuities Some hourly workers earn tips--also called gratuities--in addition to an hourly wage.

When employees regularly earn a certain amount of income in tips each month, they can be paid a lower minimum wage--another figure set by the FLSA. Again, an employee’s total income – that’s tips plus wages – must add to no less than the federal minimum wage.


Salaried Minimum wage laws also apply to salaried workers. Salaried employees receive a fixed amount of pay each week, or sometimes each month. To ensure a salaried employee’s pay works out to the minimum wage, the “hourly” rate must be calculated:

Let's say the cook earns an annual salary of $16,000. If we divide that figure by 52 workweeks per year, the cook’s pay works out to $307.69. If we then divide the weekly salary of $307.69 by a standard 40-hour workweek, we arrive at $7.69 per hour. So, if the minimum hourly wage is $7.25, the cook's salary falls within the law.

If the government increases the minimum wage, the cook’s employer will probably have to increase his salary. Exempt and Non-exempt When it comes to compensation and related issues, the Fair Labor Standards Act establishes two groupings for employees: exempt and non-exempt. In short, non-exempt employees are covered by FLSA rules and regulations, and exempt employees are not. Employers must pay a salary rather than an hourly wage for positions they classify as exempt. Being classified as exempt means the workers are generally excluded from overtime regulations, and other rights and protections afforded nonexempt workers. Typically, executive, supervisory, professional or outside sales positions are designated as exempt positions. Employees categorized as non-exempt must be paid at least the federal minimum wage for each hour worked. And they must be given overtime pay of no less than one-and-a-half times their hourly rate for any hours worked beyond 40 each week.


Hourly Versus Salaried Comparison Which is better: Getting paid by the hour and earning overtime pay for working extra hours, or receiving the same pay no matter how many hours worked? Well, that depends on two things: the worker’s preferences, and the job itself. Let’s compare a salaried employee with an hourly worker: Salaried Paula, the accountant: Accountants are usually paid a salary and their workload usually varies throughout the month. During the last week of the month, for instance, Paula works well past dinnertime every night to make sure bills and payments are recorded. She even goes into the office on Saturday to close the books. Since Paula receives a salary, she does not get paid for those extra hours – that’s considered just part of the job. But earlier in the month, when an accountant’s workload is often lighter, Paula has more flexibility than an hourly worker may have. She might polish her computer skills by taking a course during working hours, spend time on a special project she’s interested in, or organize her files. The salaried worker can be secure in knowing she will receive the same wages every week, even when leaving the office early. Hourly Mike, the ironworker: If a construction project needs to be completed ahead of schedule, Mike might put in more than 40 hours each week. He’ll earn time-and-a-half for overtime pay, as the law requires. If Mike is called on to work on many construction jobs, he can earn a good wage this season. Construction projects are often at the mercy of the weather. During bad weather, or the off-season when there’s not a lot of construction projects, Mike might not get any work. As an hourly employee, when there is no work, there is no pay. An ironworker may have to use some of the money he earned during busier times. In a year with a lot of construction work and good weather, being paid hourly with overtime is a good way to earn more than regular hourly wage. But when business is slow, the hourly worker might wish for the steady income that a salaried employee can count on.


Other Types of Compensation – Commission Commission is a different kind of pay. A commission is money paid to a salesperson as a compensation for selling products or services. It’s not based on hourly wages or weekly salary. It’s based on how much a worker sells. Retail salespeople, real estate agents, and insurance brokers, for example, may earn a commission based on a percentage of their sales. The amount of money paid to the worker is often a percentage of the product’s sales price, or it may be a flat amount per unit. A commission can be paid alone or in conjunction with other compensation. Some examples of commissions paid to salespeople include:

• Hourly plus commission o A department store salesperson may be paid a commission for each item she

sells in addition to her hourly rate.

• Straight commission – these salespeople earn no salary or hourly pay; their compensation is based solely on their sales volume.

o Real estate agents are paid in a percentage of the house’s sale price and they don’t receive their commission until the sale is completed.

o An insurance broker earns a commission based upon the number of policies she sells, or for achieving a stated number of sales.

• Draw against commission o Some commissioned salespeople receive a set amount on their regular

paycheck, even though they haven’t made the corresponding sales yet. Calculating a Draw against Commission Taking a draw against commission means workers get paid upfront for money they expect to earn from future sales. Here’s how the draw works: Jerome, a salesperson in the local electronics store, agrees to a draw of $400 per week. During the next three weeks, Jerome sells 15 TVs with a commission of $100 each. The commission earned during those three weeks--$1,500--is $300 more than the draw he received. So, Jerome’s pay would be the $1,200 he’d already received, plus $300.


At some predetermined time, such as once a quarter, Jerome’s employer calculates the difference between the amount he was paid in salary and the actual commission he earned. If Jerome is due additional money, he receives the extra pay. But if he has already drawn more money than he has earned, the employer could reduce the amount of his future draw to correct the balance. The employer could instead carry over the balance into the new period with the expectation that Jerome sell more to make up for the amount of money he has received. Considering Commissions Commissions are designed to motivate workers to be more productive. But employees who do not draw against their commission or receive other regular compensation can suffer from a lot of stress. And even workers who receive a draw may worry about not receiving a predictable paycheck when sales are slow.


Other Types of Compensation – Royalties and Residuals Royalties Book authors, musicians, other artists and product inventors often receive royalties for each copy of their work sold. A royalty payment is made for the use of copyrighted work. Royalties are usually paid as a percentage of the price of the work. Music composers split royalties 50/50 with their publisher. Recording artists usually receive about 8 to 25% of the retail price of the recording. Both typically receive payment for each copy of their work sold, be it 5 copies or 5 million. Residuals If an actress records a commercial, she is paid a fee every time the commercial is shown. The pay she receives is the residual. If a TV show or commercial is shown in many cities and runs for a long time, the actress can make quite a lot. Some workers receive other increases to their base pay, including bonuses, spiffs, cost of living allowances, merit increases, and awards.


Supplemental Compensation – Bonuses and Awards Bonuses A bonus is money paid to an employee, beyond usual compensation, usually to recognize a specific milestone. Some types of bonuses include:

• Signing bonus, for example, is an immediate payment that is not linked to work performance. It is a one-time incentive that a potential employer offers in exchange for a worker accepting a job.

• A performance bonus, by contrast, is paid when an agreed upon goal has been

reached. A baseball player who receives extra pay for hitting a certain amount of home runs is receiving a performance bonus.

• A spiff is a small, immediate bonus for a sale. Spiffs are typically paid directly to a

salesperson for selling a specific product. The money might be paid by the salesperson’s employer to encourage sales of a high profit item, or it might paid by the manufacturer of the product being sold.

Note: In some cases, such as when the government is the purchaser, spiffs may be illegal. Awards Some companies offer awards to sales reps for accomplishing certain quotas or having the most sales. The awards can be vacation trips, shopping sprees, selections from a gift book, or even cash.


Additional Compensation – Pay Increases The base salary or hourly wage is very important, as the pay earned during one year often serves as a base for figuring the increase received the following year. A cost of living allowance, or CoLA, can be used to adjust wages so they keep pace with inflation, or rising prices. Employers may also grant raises based on merit or performance – in other words, on how well one actually does their job. Unions can also play a part in getting raises for workers, often negotiating regularly scheduled pay increases into employee contracts with their employers. This type of negotiation is called collective bargaining because the union is representing all its members, not just one.


The Paycheck – Deductions When someone starts a new job and receives their first paycheck, they may expect a certain amount. But the amount on this check is so much smaller than they anticipated. What are all of these deductions that shrank the check? Where did the money go? Here are some deductions that appear on paystubs that accompany paychecks. Employers are required by law to withhold some money from each worker’s paycheck to pay for certain taxes. These withholdings help pay for things like income tax, Social Security and Medicare. Taxes, FICA, Social Security and Medicare Withholdings Employers must withhold, or hold back from each employee’s check, the appropriate amount of federal and state taxes. Each pay period, the employer holds back a percentage of the employee’s pay (income) and sends it to the federal and state governments. This is the main way Americans pay income taxes. The government puts the money into its treasury, then uses the funds to pay for military, road repair, social programs, government worker salaries, and more. The amount of taxes the employer withholds is based on the personal allowances appearing on a W-4 form. The W-4 form must be completed by all employees before they can receive their first paycheck. The information required on the W-4 includes the employee’s marital status and the number of personal allowances they will claim – such as the number of dependents. The more dependents, such as children or an elderly parent, the less tax an employer will withhold from the employee’s pay. Everyone will always have at least one allowance – them self. There are also contributions for FICA, which stands for Federal Insurance Contributions Act. Also called payroll taxes, these contributions fund Social Security and Medicare programs. Social Security and Medicare programs provide income and health care for retirees, disabled people, and survivors of those who have died but paid into the program while they were working.


One half of the total amount of the Social Security is paid by the employee when their employer withholds it from their paycheck and sends it to the government, the other half must be paid by the employer. Medicare contributions appear in a separate box on the paystub. Union Dues Unions represent many different categories of employees to address issues like working hours, safety, and raises. Unions can also negotiate wages and benefits, including retirement plans. Employees represented by a union are required to pay dues to the union for membership. Dues help pay for things like its staffing and legal counsel for members. A company that hires union employees usually deducts the dues from the workers’ gross pay and sends them straight to the union. Terms Gross pay is the amount of wages paid by an employer before any deductions—such as FICA payments, taxes, or union dues--are taken out. Net pay is the amount of money that employees earn after deductions are subtracted from their gross pay. Other deductions from a check may include contributions made toward benefits, like health insurance, life insurance, or a pension plan. Some deductions may be taken only occasionally, while others may be taken every pay period or every other pay period. A pay period is the frequency with which payroll is processed and paychecks are issued. Often a paystub will show not only the figures for the latest pay period, but for all the pay periods so far that calendar year.


Insurance Health Health insurance coverage is important to Paula, who has two children. She has authorized her employer to deduct part of her salary each pay period. That money is used to pay for part of a health insurance plan that the employer is able to buy at a discount because they are buying it for so many employees at once. Paula’s employer contributes a large portion to the cost of his employees’ health coverage, and he deducts a smaller amount from her paycheck. Life Life Insurance coverage is often provided by the employer. Sometimes employees have the opportunity to purchase additional coverage. Funds to pay for the extra insurance are deducted from worker’s paychecks. Disability Disability insurance provides income if a person is person is unable to work due to a severe illness or injury. If disability insurance is available at the individual’s company, and they choose to purchase it, part or all of the cost appears as a deduction on a paystub.


Retirement Retirement planning is another financial benefit many employers provide for employees. Some companies offer a pension fund that provides income to employees after they retire. Others offer a 401K plan. A 401k is named after a line in the federal tax code. Opening a 401k account is a way to save for retirement while deferring the state and federal taxes paid on the money saved. Although the IRS limits how much a person may contribute each year, it's up to the employee to tell their employer how much to deduct from their earnings. The funds go directly into a 401k account and are usually managed by an independent investment professional. The money contributed is deducted from the employee’s gross pay before taxes are calculated. Their savings will grow tax-free until they take the money out at retirement. And their employer may even offer to match a portion of their contribution. Here’s how a 401k plan works:

• You earn $400 per week and choose to contribute 4% of your pay, or $16. • Your employer might offer to contribute 50 cents for each dollar you contribute (that’s

another $8). • That equals $24 per week of savings, which adds to more than $1,200 per year! • The money is invested so your savings can grow over time • You often have a say in how it’s invested, so that $1200 could be even larger...all for

$16 per week. • The sooner you start saving, the bigger your retirement fund could become.


The Paycheck – Benefits and Perqs Benefits Not all companies offer health insurance, 401k plans, or other benefits we’ve mentioned. Likewise, some employers offer paid time off in the form of vacation time, holidays, personal days and sick time, but they are not required by federal law. Paid Time Off Paula has a common vacation benefit. Her employer offers one week of paid time off after one year of employment, two weeks after two years, and additional days as her time with the company continues. For Mike, the Ironworker’s union has negotiated 13 paid days off for its members. Many days are federal holidays, and one is a personal day. A personal day is offered so employees may take care of personal business that they cannot easily take care of on holidays, weekends or in the evenings. Mike received five days pay on the check in this example, although he only worked three regular days. He received pay for Christmas Eve and Christmas day because they are two of the holidays on the list. Perqs These types of benefits – from 401K plans to personal days – have come to be called perqs, which is short for ”perquisites.” It refers to special benefits that are noncash but usually carry a monetary value. Perqs have come to be expected by workers, but most perqs are offered at the employer’s discretion. They are often important if companies want to be competitive when searching for talented full-time workers. Profit Sharing As part of a benefit package that would entice employees to work for a company, employers sometimes include profit sharing and stock options in their offerings. In a profit sharing plan, a company may choose to divide a portion of its profits among its employees. This kind of benefit encourages employees to work toward ensuring the company makes high profits they can share in. Employees are more likely to work efficiently, use supplies sensibly, and offer suggestions to improve their own productivity.


Stock Options A company may also give employees the opportunity to purchase a certain number of shares of their stock. This benefit is called stock options. Stock options are contracts that allow the employee to purchase shares of the company stock at a specific price, usually the current price of the stock at the time the options are issued. They might have restrictions, such as a requirement to purchase them within a time period set by the employer. Stock options are only valuable if the price of the company's stock goes up.


The Paycheck – The W-2 The W-2 Form Wages, deductions for federal and state taxes, and Social Security and Medicare withholdings are all summarized on a W-2 Form. Boxes for health care and life insurance premiums that are deducted from wages also appear on the W-2. There will also be a box with any 401k contributions. All employers must provide a copy of the W-2 form to each employee no later than January 31 of the year following the year worked. The employer also files copies of this form with the IRS and with the state in which their employee worked. Once the employee receives their W-2 from their employer, they can prepare their income tax return. If they overpaid their taxes, the government will send their money back - but only if they complete the tax form and mail it in. If they did not send the government enough money throughout the year, they will be sending them a check. Either way, everyone must file y tax return no later than April 15th every year.


How People Are Paid Matching Quiz

Match the words in the first column to the best available answer in the second column.

_____ Pay for each piece of work done, not by an hourly rate. 1) Performance Bonus

_____ Pay at the rate of 1.5 times the regular hourly rate. 2) Minimum Wage

_____ Pay issued when an agreed upon goal is reached. 3) Non-exempt

_____ Employees covered by FLSA rules and regulations. 4) Piece rate

_____ The frequency with which payroll is processed and paychecks are issued. 5) Net pay

_____ The amount of money that employees earn after deductions are subtracted from their gross pay. 6) Pay period

_____ Types of benefits – from 401K plans to personal days. 7) CoLA

_____ Used to adjust wages to keep with inflation, or rising prices. 8) Perqs

_____ The lowest hourly wage an employer can legally pay their workers. 9) Overtime

_____ The pay an actress receives every time a commerical is shown. 10) Residual


How People Are Paid Matching Quiz

__4___ Pay for each piece of work done, not by an hourly rate. 1) Performance Bonus

__9___ Pay at the rate of 1.5 times the regular hourly rate. 2) Minimum Wage

__1___ Pay issued when an agreed upon goal is reached. 3) Non-exempt

__3___ These employees are covered by FLSA rules and regulations. 4) Piece rate

__6___ The frequency with which payroll is processed and paychecks are issued. 5) Net pay

__5___ Earnings after deductions are subtracted from gross pay. 6) Pay period

__8___ Types of benefits – from 401K plans to personal days. 7) CoLA

__7___ Used to adjust wages so they keep with inflation, or rising prices. 8) Perqs

__2___ The lowest hourly wage an employer can legally pay their workers. 9) Overtime

__10___ The pay an actress receives every time a commerical is shown. 10) Residual


How People Are Paid Multiple Choice Circle the best answer for each question.

1. The amount of taxes an employer withholds is based on the personal allowances appearing on this form:

a) 1040a b) W-2 c) W-4 d) FLSA

6. Contracts that allow the employee to purchase shares of the company stock at a specific price are called:

a) profit sharing plans b) stock options c) exemptions d) Signing bonuses

2. A payment made for the use of copyrighted work is a:

a) royalty b) residual c) draw d) perq

7. The law that established the minimum wage is the:

a) CoLA b) FLSA c) MNOP d) FICA

3. This allowance can be used to adjust wages so they keep pace with inflation, or rising prices:

a) CoLA b) FICA c) royalty d) perq

8. A small, immediate bonus for a sale that is typically paid directly to a salesperson is a:

a) commission b) draw c) compensation d) spiff

4. This account is named after a line in the federal tax code and is a way to save for retirement while deferring taxes:

a) W-2 b) FLSA c) 401k d) W-4

9. These taxes are withheld from a paycheck - the government uses the money to pay for military, road repair, social programs…

a) income taxes b) payroll taxes c) CoLA d) residuals

5. Money paid to an employee, beyond usual compensation, usually to recognize a specific milestone is a:

a) stock option b) bonus c) perq d) award

10. If an actress records a commercial, she is paid a fee every time the commercial is shown. The pay she receives is called a:

a) residual b) spiff c) royalty d) bonus


How People Are Paid Multiple Choice

1. The amount of taxes an employer withholds is based on the personal allowances appearing on this form:

a) 1040a b) W-2 c) W-4 d) FLSA

6. Contracts that allow the employee to purchase shares of the company stock at a specific price are called:

a) profit sharing plans b) stock options c) exemptions d) Signing bonuses

2. A payment made for the use of copyrighted work is a:

a) royalty b) residual c) draw d) perq

7. The law that established the minimum wage is the:

a) CoLA b) FLSA c) MNOP d) FICA

3. This allowance can be used to adjust wages so they keep pace with inflation, or rising prices:

a) CoLA b) FICA c) royalty d) perq

8. A small, immediate bonus for a sale that is typically paid directly to a salesperson is a:

a) commission b) draw c) compensation d) spiff

4. This account is named after a line in the federal tax code and is a way to save for retirement while deferring taxes:

a) W-2 b) FLSA c) 401k d) W-4

9. These taxes are withheld from a paycheck - the government uses the money to pay for military, road repair, social programs…

a) income taxes b) payroll taxes c) CoLA d) residuals

5. Money paid to an employee, beyond usual compensation, usually to recognize a specific milestone is a:

a) stock option b) bonus c) perq d) award

10. If an actress records a commercial, she is paid a fee every time the commercial is shown. The pay she receives is called a:

a) residual b) spiff c) royalty d) bonus


Questions for Discussion

1. Discuss the benefits of hourly versus salaried positions.

2. Compare the risks versus the rewards that are associated with working for commission.


Glossary A 401k is named after a line in the federal tax code. Opening a 401k account is a way to save for retirement while deferring the state and federal taxes paid on the money saved. Some companies offer awards to sales reps for accomplishing certain quotas or having the most sales. A bonus is money paid to an employee, beyond usual compensation, usually to recognize a specific milestone. A cost-of-living allowance, or CoLA, can be used to adjust wages so they keep pace with inflation, or rising prices. Collective bargaining is a type of negotiating that occurs when a union is representing all its members in an effort to obtain raises and benefits through a contract with their employer. A commission is money paid to a salesperson as a compensation for selling products or services. To receive compensation means to obtain something--such as wages and other financial benefits--in return for work. Draw against commission - Some commissioned salespeople receive a set amount on their regular paycheck, even though they haven’t made the corresponding sales yet. Being classified as exempt means the workers are generally excluded from overtime regulations, and other rights and protections afforded nonexempt workers. Fair Labor Standards Act, or FLSA established the minimum wage. The FLSA is designed to protect workers employed by private companies and those who work for most government agencies. Contributions that fund Social Security and Medicare programs are called FICA, which stands for Federal Insurance Contributions Act. Gross pay is the amount of wages paid by an employer before any deductions—such as FICA payments, taxes, or union dues--are taken out. Income taxes are withheld from a paycheck - the government puts the money into its treasury, then uses the funds to pay for military, road repair, social programs, government worker salaries, and more. The term minimum wage refers to the lowest hourly wage that employers may legally pay to their workers. Net pay is the amount of money that employees earn after deductions are subtracted from their gross pay. Employees categorized as non-exempt must be paid at least the federal minimum wage for each hour worked. And they must be given overtime pay of no less than one-and-a-half times their hourly rate for any hours worked beyond 40 each week.


The FLSA currently sets overtime pay at rate of one-and-a-half times of employees’ regular hourly rate. That overtime rate goes into effect after an employee works more than 40 hours in a week. Payroll taxes, are also called FICA, which stands for Federal Insurance Contributions Act (see FICA). A performance bonus is paid when an agreed upon goal has been reached. A baseball player who receives extra pay for hitting a certain amount of home runs is receiving a performance bonus. 401K plans to personal days – have come to be called perqs, which is short for ”perquisites.” It refers to special benefits that are noncash but usually carry a monetary value. In a profit sharing plan, a company may choose to divide a portion of its profits among its employees. If an actor records a commercial, she is paid a fee every time the commercial is shown. The pay she receives is the residual. A royalty payment is made for the use of copyrighted work. Signing bonus, for example, is an immediate payment that is not linked to work performance. It is a one-time incentive that a potential employer offers in exchange for a worker accepting a job. Social Security and Medicare programs provide income and health care for retirees, disabled people, and survivors of those who have died but paid into the program while they were working. A spiff is a small, immediate bonus for a sale. Spiffs are typically paid directly to a salesperson for selling a specific product. Straight commission – these salespeople earn no salary or hourly pay; their compensation is based solely on their sales volume. Stock options are contracts that allow the employee to purchase shares of the company stock at a specific price, usually the current price of the stock at the time the options are issued. Union dues are paid to the union by employees they represent to cover their membership in that union. Dues help pay for things like its staffing and legal counsel for members. Wages, deductions for federal and state taxes, and Social Security and Medicare withholdings are all summarized on a W-2 Form. The amount of taxes an employer withholds is based on the personal allowances appearing on a W-4 form. Employers must withhold, or hold back from each employee’s check, the appropriate amount of federal and state taxes.

Documents

641 West Lake Street Chicago, IL 60661 800.634.4941 www ...wp.lps.org/bjames/files/2016/12/How-people-are-paid...some labor unions, succeeded with a proposal for the first minimum