CHAPTER 6 – PAY, BENEFITS, AND WORKING CONDITIONS
Unit 2 – Money Management
Lesson 6.1 – Understanding Pay, Benefits, and Incentives
Gross Pay, Deductions, and Net Pay
Gross pay – the total amount you earn before any deductions are subtracted.
Hourly Wages: To determine regular gross pay, multiply the pay rate by
the number of hours: EX: $6.50 x 40 hours = $260
Overtime – time worked beyond regular hours. A standard workday is 8
continuous hours; for a week it is 40 hours. According to the Fair Labor Standards Act, employers must pay hourly workers for overtime at the rate of 1 ½ times the regular rate of pay. (EX: $6.50 x 1.5 = $9.75)
Salary – Salaried employees do not receive additional pay for overtime.
Deductions – amounts subtracted from your gross pay (EX: federal
income tax, social security, company-sponsored savings plans, health insurance, union dues, etc)
Net Pay – the amount left after all deductions are taken out of your gross pay -- also called “take-home pay.” (Save your withholding sheets or paycheck stubs to verify accuracy of the W-2 Form your employer gives you for your income tax return.) Required deductions include federal, state, and local taxes, and social security and Medicare taxes.
Tax Tables – use appropriate tables to determine tax withheld – weekly, semi-weekly, monthly, etc. (see page 123 in textbook)
Social Security deductions are withheld at the standard rate of 6.2% of the first $87,000. Medicare tax deduction is withheld at the rate of 1.45 of all pay earned. Employers must contribute matching amount into each employee’s Medicare and social security accounts.
Self-Employed Requirements – People who are self-employed do not have employee deductions and withholdings. Instead, they must file estimated tax returns quarterly (4 times during the year) with payments. They estimate the total they will owe in taxes, divide it by 4. The IRS credits each payment toward their tax obligation for the year.
Self-employed must pay social security tax and Medicare tax and they must pay both employee and matching employer contributions. The total of both taxes 15.3%) is called the self-employment tax.
Benefits and Incentives
Profit Sharing – a plan that allows employees to receive a portion of the
company’s profits at the end of the corporate year. It is consideredincentive pay – money offered to encourage employees to strive for higher levels of performance.
Paid Vacations and Holidays – Generally, a week’s paid vacation after a
year of full-time employment, two weeks after two years, three weeks after five years. Typical holidays are: Christmas, Thanksgiving, Fourth of July, Labor Day, and Memorial Day. An employee required to work on a holiday is usually paid double.
Employee Services – the extras that companies offer in order to improve
employee morale and working conditions, such as discounts on merchandise sold, social and recreational programs, free parking, tuition reimbursement, day-care centers, wellness programs, counseling.
Child care – many companies provide on-site child-care facilities
Sick Pay – it is customary to receive three to ten days a year as ‘sick days’
without deductions from pay
Leaves of Absence – while a leave of absence may be unpaid, it has an
important advantage: it gives job security and permits you to take time off for important events in your life.
Insurance – most plans require that employees pay for part of their own
coverage. Plans may include group health, dental, vision, and life insurance.
Health Insurance –A typical health insurance plan has an
employee-paid amount, or deductible. After the deductible has been reached, the plan pays 80 percent of most doctor bills and prescriptions and 100 percent of hospitalization charges and emergency bills.
Life Insurance – pays cash benefits to a designated person, called a beneficiary, when the insured person dies. The purpose of life insurance is to partially offset the income lost when a wage earner dies.
Dental Insurance – routine exams and cleanings are often covered 100 percent, while most other services are covered at 80 percent.
Vision Insurance – cost of prescription lenses and eye exams once every few years. Frames are usually not covered
Bonuses and Stock Options – Bonus are given for several reasons: year-
end bonus for having no serious on-the-job accidents; holiday bonuses based on years of service, bonus for reaching sales goals. Stock options of the company are offered to buy a set number of shares at a fixed price by a certain time.
Pensions and Savings Plans. Pension Plans are completely funded by the
employer. Employees are fully vested (entitled to the full retirement account) after a specified period of time, such as five years. When an employee retires, s/he receives a monthly check. Many employers are switching to an employer-sponsored savings plan, such as a 401(k) for private employers or a 403(b) for government employers so they do not have to bear the full cost of a retirement plan – the employee makes contributions to his or her own account (the employer may but is not required to contribute money to it).
Travel Expenses – such as mileage allowance, meals, motel. Generally
car insurance, gasoline, and repair and maintenance expenses for the company automobile are also provided.
Evaluating Employee Benefits – generally, large companies provide more
extensive optional benefits than do small companies. Cafeteria-style employee benefits are programs that allow workers to base their job benefits on personal needs. Flexibility is key.
Lesson 6.2 – Work Arrangements and Organizations
Flexible Work Arrangements
Altered Workweeks
Flextime (or flexible schedules) – allow employees to choose their
working hours within defined limits. Employees are generally required to be present during a specified core time period, which is a crucial time during the day when all employees must be working.. Flextime is good for business because employees are responsible for working a full day regardless of when they arrive on the job.
Compressed workweek – fits the normal 40-hour workweek into
less thanfive days, such as 10 hours a day for 4 days, followed by 3 days off. Some kinds of strenuous physical or mental work are probably not suitable for a compressed workweek.
Job Rotation – is a job design in which employees are trained to do more
than one specialized task. It gives employees more variety in their work and allows them to use different skills. It reduces boredom and burnout.
Job Sharing – a job design in which two people share one full-time
position. It is attractive to people who want part-time work.
Permanent Part-Time and Telecommuting. Part-time is generally 16 to 25
hours a week and usually provides some benefits. Telecommuters can work at home or on the road, and stay in contact with their manager and co-workers through e-mail, fax, and cell phone.
Labor Unions and Professional Organizations
A labor union is a group of people who work in the same or similar occupations,organized for the benefit of all employees in these occupations.
Four Main Functions of Labor Unions:
(1)Collective bargaining – (the main function) – the process of negotiating the terms of employment for union members. These terms are then written into a contract which usually specifies wages, overtime rates, hours of work, and benefits. It also spells out a grievance procedure (a formal complaint).
Contracts usually provide seniority rights – a policy in which the last workers hired will be the first fired when jobs must be cut.
Mediation – a neutral third party (aka arbitrator) helps the union and employer reach a compromise in cases of disagreement. If they still cannot agree, the union may decide to strike, or refuse to work until an agreement is reached.
(2)Recruiting new members
(3)Support political candidates for are favorable to the union
(4)Provide support services for members
Types of Unions
Craft Unions – limited to a specific craft or trade – such as bricklayers, carpenters, or plasters.
Industrial unions – are skilled, semiskilled, or unskilled employees in a
particular place, industry, or group of industries.
Public-employee unions – such as municipal, county, state, or federal
employees such as firefighters, teachers, and police officers
Professional Organizations – an organization of people in a particular occupation that requires considerable training and specialized skills. EX: American Bar Association for lawyers; National Education Association for educators; American Medical Association for doctors.
Through lobbying, professional organizations try to influence public officials to take political action that benefits the profession. They administer exams, accreditations, and admission requirements to maintain professional standards.