Exercise #9: Calculating Take Home Pay and Monthly Labor Costs

Directions:
Calculate the take-home pay for each employee (monthly or weekly) and then calculate the monthly labor cost for the company for the month of January. (Assume that a month is one-twelfth of 52 weeks.)

Company:
CHC Forecast Inc is a software company that has four full-time professionals who are paid monthly salaries and eight part-time representatives who are paid weekly for the hours they work that week. The deductions from pay include federal tax (ignore state tax for this exercise), Social Security (FICA), and deferred savings through a 401(k) plan. Instructions for calculating federal taxes using the percentage method and the tables are shown below.

The company’s 401(k) plan matches what the employees save on a one-to-one basis for the first three percent and a half of a percent for each one percent the employee saves up to a maximum of six percent for the company.

The company pays Workers Compensation, Social Security, and Unemployment Compensation. Workers’ Compensation costs for the company are two percent of the first $7,000 of an employee’s annual salary. FICA is 7.65% (1.45% plus 6.2% of the first $97,500) for both the employer and the employee. Unemployment compensation (FUTA) is 0.8 percent of the first $7000 of annual income.

Workforce:
Full-time: Monthly Salary 401(k) % Marital Status Exemptions
Jack $8,800 20 Married 2
David $6,600 20 Married 0
Kris $5,100 10 Single 1
Mark $4,900 8 Married 6

Part-Time Hr.Rate Hours 401(k)% Marital Status Exemptions
Edgardo $12 15 20 Married 7
Bill $12 15 15 Married 5
Shera $12 15 10 Married 3
Mindy $10 15 10 Married 0
Chocoa $10 12 9 Single 1
Jersha $10 12 6 Single 1
Evan $10 12 3 Single 0
Jay $8 12 3 Single 0

Federal Tax Withholding Calculations

Percentage Method

Use these steps to figure the income tax to withhold under the percentage method. This method works for any number of withholding allowances the employee claims and any amount of wages. 1. Multiply one withholding allowance for your payroll period (see Table below) by the number of allowances that the employee claims. 2. Subtract that amount from the employee's wages. 3. Determine the amount to withhold from the appropriate table.
Percentage Method—2008 Amount for One Withholding Allowance
|Payroll Period |One Withholding Allowance |
|Weekly |$67.31 |
|Biweekly |134.62 |
|Semimonthly |145.83 |
|Monthly |291.67 |
|Quarterly |875.00 |
|Semiannually |1,750.00 |
|Annually |3,500.00 |
|Daily or miscellaneous (each day of the payroll |13.46 |
|period) | |

Example. An unmarried employee is paid $600 weekly. This employee has in effect a Form W-4 claiming two withholding allowances. Using the percentage method, figure the income tax to withhold as follows:
|1.|Total wage payment | |$600.00 |
|2.|One allowance |$67.31 | |
|3.|Allowances claimed on Form W-4 |2 | |
|4.|Multiply line 2 by line 3 | |$134.62 |
|5 |Amount subject to withholding (subtract line 4 from line 1) | |$465.38 |
|6.|Tax to be withheld on $465.38 from Table 1—single person | |$54.81 |

To figure the income tax to withhold, you may reduce the last digit of the wages to zero, or figure the wages to the nearest dollar.

|TABLE 1—WEEKLY Payroll Period |
| |
|(a) SINGLE person (including head of |(b) MARRIED person— |
|household)— | |
|If the amount of |The amount of income |If the amount of | |The amount of income |
|wages (after |tax |wages (after | |tax to withhold is: |
|subtracting |to withhold is: |subtracting | | |
|withholding | |withholding | | |
|allowances) is: | |allowances) is: | | |
|Not over $51 |$0 | |Not over $154 |$0 | |
|Over— |But not |of excess over— |Over— |But not |of excess over— |
| |over— | | |over— | |
|$51 |—$198 | |10% |—$51 |$154 |—$453 | |10% |—$154 |
|$198 |—$653 | |$14.70 plus |—$198 |$453 |—$1,388 | |$29.90 plus |—$453 |
| | | |15% | | | | |15% | |
|$653 |—$1,533 | |$82.95 plus |—$653 |$1,388 |—$2,651 | |$170.15 plus|—$1,388 |
| | | |25% | | | | |25% | |
|$1,533 |—$3,202 | |$302.95 plus|—$1,533 |$2,651 |—$3,994 | |$485.90 plus|—$2,651 |
| | | |28% | | | | |28% | |
|$3,202 |—$6,916 | |$770.27 plus|—$3,202 |$3,994 |—$7,021 | |$861.94 plus|—$3,994 |
| | | |33% | | | | |33% | |
|$6,916 |$1,995.89 |—$6,916 |$7,021 |$1,860.85 |—$7,021 |
| |plus 35% | | |plus 35% | |

|TABLE 4—MONTHLY Payroll Period |
| |
|(a) SINGLE person (including head of |(b) MARRIED person— |
|household)— | |
|If the amount of |The amount of income |If the amount of |The amount of income |
|wages (after |tax |wages (after |tax to withhold is: |
|subtracting |to withhold is: |subtracting | |
|withholding | |withholding | |
|allowances) is: | |allowances) is: | |
|Not over $221 |$0 | |Not over $667 |$0 | |
|Over— |But not |of excess over— |Over— |But not |of excess over— |
| |over— | | |over— | |
|$221 |—$858 | |10% |—$221 |$667 |—$1,963 | |10% |—$667 |
|$858 |—$2,830 | |$63.70 plus|—$858 |$1,963 |—$6,013 | |$129.60 |—$1,963 |
| | | |15% | | | | |plus 15% | |
|$2,830 |—$6,644 | |$359.50 |—$2,830 |$6,013 |—$11,488 | |$737.10 |—$6,013 |
| | | |plus 25% | | | | |plus 25% | |
|$6,644 |—$13,875 | |$1,313.00 |—$6,644 |$11,488 |—$17,308 | |$2,105.85 |—$11,488 |
| | | |plus 28% | | | | |plus 28% | |
|$13,875 |—$29,971 | |$3,337.68 |—$13,875 |$17,308 |—$30,425 | |$3,735.45 |—$17,308 |
| | | |plus 33% | | | | |plus 33% | |
|$29,971 |$8,649.36 |—$29,971 |$30,425 |$8,064.06 |—$30,425 |
| |plus 35% | | |plus 35% | |