Page 139 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
Computing Pay under the Hourly Rate Plan
The hourly rate plan is by far the most common method for calculat-
ing wages for hourly employees. This involves simply multiplying the
wage rate per hour times the number of hours worked during the
workweek. It can be complicated by adding shift differentials, overtime,

and other forms of bonus pay to the base wage rate. (The overtime cal-
culation is covered in a later section.)
Example. Manuel Eversol works the second shift at a manufacturing
facility, where he earns an extra $0.25 per hour as a shift differential, as
well as a base wage of $12.50 per hour. He worked a standard 40 hours in
the most recent workweek.The calculation of his total wages earned is:

($12.50 base wage + $0.25 shift differential) x 40 hours = $510 weekly pay

Computing Pay under the Piece-Rate Plan

The piece-rate pay plan is used by companies that pay their employees
at least in part based on the number of units of production completed.
To calculate wages under this method, multiply the rate paid per unit of
production by the number of units completed in the workweek. An
employer that uses this approach must still pay its staff for overtime
hours worked; to calculate this, divide the total piece-rate pay by the
hours worked, then add the overtime premium to the excess hours
worked. An employer can avoid this extra calculation by computing
wages earned during an overtime period using a piece rate that is at least

1.5 times the regular piece rate.
Example. The Alice Company makes miniature Alice dolls and pays its
staff a piece rate of $0.75 for each doll completed. One worker completes
320 dolls in a standard 40 hour workweek, which entitles her to pay of
$240 (320 dolls x $0.75 piece rate). The worker then labors an extra five
hours, during which time she produces an additional 42 dolls.To calculate
her pay for this extra time period, her employer first calculates her regular

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