Page 142 - Essentials of Payroll: Management and Accounting

Compensation
is issued or when cash is received from the customer. The commission
calculation may be quite complex, involving a percentage of the dollar
amount sold, a fixed fee per sale, a bonus override for the sale of spe-
cific items, or perhaps a commission-sharing arrangement with anoth-

er member of the sales force. In any case, commissions are considered
regular wages for tax withholding purposes, so all normal income tax
withholdings, as well as taxes for Social Security, Medicare, and FUTA
must be deducted from them.
Example. Mr. Charles Everson is a salesperson for the Screaming
Fiddler Company. His basic compensation deal is a 6 percent commis-
sion on all sales at the time they are invoiced, plus $25 each for any fiddle

that is currently overstocked. He sells two of the Melodic series fiddles
for $600 each, and three of the overstocked Kid’s Mini models for $450
each. His compensation is as follows:
2 x $600 Melodic series fiddles = $1,200 x 6% commission = $72

3 x $450 Kid’s Mini series fiddles = $1,350 x 6% commission = $81

Bonus on sales of overstocked Kid’s Mini models = $75

Total = $228

Tips
Tips are paid directly to employees by customers for services per-

formed. Employees who receive tips must report them to the employ-
er by the tenth day of the month after the month in which the tips
were received, except when total tips for the month are less than $20.
This information should be reported to the employer on Form 4070,
“Employee’s Report of Tips to Employer”.
The employer is required to withhold income, Social Security, and
Medicare taxes from employee tips. These deductions are frequently
made from employee base wages, rather than their tips, since employees

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