Salary computation

A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis.

Basic rate of pay There are two ways to calculate daily wages: the basic rate of pay, and the gross rate of pay. Basic rate of pay is used to calculate pay for work on a rest day or public holiday. For a monthly-rated employee, the basic rate of pay for one day is calculated as follows:

12 X monthly basic rate of pay ----------------------------------------------------------------52 X average number of days an employee is required to work in a week

For a piece-rated employee, the basic rate of pay for one day is calculated as follows:

Total pay earned (without allowance) during the 14 calendar days immediately before a rest day/public holiday/outpatient sick leave --------------------------------------------------------------------------------------------------------------------Number of days worked during the same period of 14 calendar days

The basic rate of pay includes wage adjustments and increments that an employee is entitled to under his/her contract of service, but it excludes the following: a. Additional payments by way of: *overtime payments; *bonus payments; or *annual Wage Supplements; b. Any sum paid to the employee for reimbursement of special expenses incurred by him/her in the course of employment; c. Productivity incentive payments; and d. Any allowance however described.

Gross rate of payThe Gross rate of pay is used to calculate: a. salary in lieu of notice of termination of service; b. salary deduction for unauthorised absence from work; c. paid public holidays; and d. approved paid leave including: *annual leave; *hospitalisation leave; and *maternity leave.

For a monthly-rated employee, the gross rate of pay for one day is calculated as follows:12 X monthly gross rate of pay -------------------------------------------------------------------52 X average number of days an employee is required to work in a week

For a piece-rated employee, the gross rate of pay for one day is calculated as follows:Total pay earned (with allowance) during the 14 calendar days immediately before a rest day/public holiday/outpatient sick leave -----------------------------------------------------------------------Number of days worked during the same period of 14 calendar days

The Gross rate of pay should include allowances that an employee is entitled to under his/her contract of service, but it excludes the following: a. Additional payments by way of: *overtime payments; *bonus payments; or *annual Wage Supplements; b. Any sum paid to the employee for reimbursement of special expenses incurred by him/her in the course of employment; c. Productivity incentive payments; and d. Travelling, food or housing allowances.

Monthly wages For the purpose of calculating salary, a month' or complete month' refers to any one of the months in the calendar year. An incomplete month of work is one where an employee: *starts work after the first day of the month; *leaves employment before the last day of the month; *takes no-pay leave of one day or more during the month; or *is on reservist training during the month.

Salary payable to a monthly-rated employee for an incomplete month of work is calculated using the formula below:Monthly gross rate of pay1 Salary payable for -------------------------------- Total number of days the ------x incomplete month of = employee actually work worked in that month3 Total number of working days in that month2

1 Refers to the total amount of money including allowances payable to an employee for working for one month

It excludes: a. Additional payments by way of: *overtime payments; *bonus payments; or *annual Wage Supplements; b. Any sum paid to the employee for reimbursement of special expenses incurred by him/her in the course of employment; c. Productivity incentive payments; and d. Travelling, food or housing allowances. 2 Excludes rest days, non-working days but includes public holidays. For employees with a fixed rest day on Sunday and/or non-working day on Saturday, the total number of working days per month.

3 Includes public holidays, paid hospitalisation leave or annual leave if entitled. If the number of working hours in any working day is five hours or less, it shall be regarded as a halfday. If it is more than five hours, it shall be regarded as one working day.

Monthly gross rate of pay1 Salary payable for -------------------------------- Total number of days the ------x incomplete month of = employee actually work worked in that month3 Total number of working days in that month2

Calculating Salaries for Non-Exempt EmployeesNon-exempt employee is paid a salary, the employer and the employee must come to an understanding that the salary covers a fixed number of hours in each workweek. So the employees regular rate of pay can be calculated by dividing the number of hours expected each week into the weekly salary.

For instance, suppose a secretary is hired to work from 9:00 am to 5:00 pm each, and she has an hour off for lunch. She would be working a 35-hour workweek. If she is paid $350 per week, then her regular rate of pay is $10 per hour ($350 / 35 hr). What if a salaried, non-exempt employee works more than 40 hours per week? The CFR states that the employee should be paid for the first 40 hours of work at his regular rate of pay, and he is then entitled to overtime at one and a half times his regular rate of pay.

If the above secretary works 45 hours in one workweek, the overtime can actually be calculated using the overtime premium method as follows: *Calculate the regular rate of pay. ($350 / 35 hr = $10/hr) *Calculate the employees total remuneration. (45 hr x $10/hr = $450) *Calculate the overtime premium. (5 hr x .5 x $10/hr = $25) *Calculate total pay. ($450 + $25 = $475)

There are some additional issues that still need to be addressed. What if the agreed upon salary is not stated in weekly terms? Then the CFR provides the basic calculations for reducing the employees salary to weekly terms. Annual Divide by 52. Monthly Multiply by 12 and divide by 52. Semi-Monthly Multiply by 24 and divide by 52. Biweekly Divide by 2.

What if the agreed upon workweek is less than 40 hours, and the employee works more than the expected number of hours, but less than 40 hours? The Tax Court has ruled that if a non-exempt, salaried employee works more than the normal week, but less than 40 hours, the employer is not required to pay for the additional hours worked. For instance, if the above secretary works 38 hours during the workweek, she does not have to be paid for the additional 3 hours. The agreement between the employer and the employee is that the salary covers all hours worked with the exception of workweeks in which the employee works more than 40 hours.

Semi-Monthly PayrollsPay Dates The employer has to determine which two calendar dates each month will be used for paying payroll. This would include the issue of when to pay the payroll if the calendar date falls on a weekend. Cut-off Dates The payroll department needs a certain number of days of lead-time to process the payroll. For instance, the cut-off date may be set at 5 business days before the payroll date. Anything that would require an adjustment to payroll (such as overtime) would have to occur prior to the cutoff date to be included in the next payroll. Payroll Period The employer has to make a choice between alternatives here. The payroll period could include all of the workdays that occur from the first day following the previous payrolls cut-off date through the cut-off date of the current payroll. Or the employer could decide that payroll will be paid current, so the payroll period would begin on the day following the previous payroll and would end on the date of payroll. Workweek Since the workweek is the basic unit of the FLSA, the employer must set a workweek for determining if employees have worked overtime. Any overtime that occurs in a workweek that ends prior to the cut-off date would be paid on the next pay date. If the workweek ends after the cut-off date, then the overtime would not be paid until the following pay date.

Example 12 Month EmployeeNew Hire Works 226 days of 226 Schedule Yearly Salary - $40,000 for 226 days Start Date: 7/1/2006 Days Worked: 226 Daily Rate: $176.99 (approximate) Salary: $40,000 for 226 days Paycheck: Approx. $1667/paycheck Late Hire Works 166 days of 226 schedule Yearly Salary - $40,000 for 226 days Start Date: 10/1/2006 Days Worked: 166 (approximate) Daily Rate: $176.99 (approximate) Salary: $29,380 for 166 days (approximate) Paycheck: Approx. $1632/paycheck

Pay Periods: 24 (July 15 Pay Periods (approx): 18 (October 15 July July 1) 1)

Example TeacherNew Hire Works 187 days of 187 Schedule Yearly Salary - $43,253 for 187 days Start Date: 8/10/2006 Days Worked: 187 Late Hire Works 99 days of 187 schedule Yearly Salary - $43,253 for 187 days Start Date: 1/2/2007 Days Worked: 99 (approximate)

Daily Rate: $231.30 (approximate) Daily Rate: $231.30 (approximate) Salary: $43,253 for 187 days Paycheck: Approx. $1802/paycheck Pay Periods: 24 (Sept Aug) Salary: $22,899 for 99 days (approximate) Paycheck: Approx. $1636/paycheck Pay Periods (approx): 14 (Feb Aug)