Rules in the Computation of Wages & Salaries
In most cases, workers can easily compute their salaries and wages using simple arithmetic, based on pay rates and hours worked. However, even these simple calculations can have important regulatory and legal consequences. In more complex cases, such as overtime pay and income taxes, special rules apply to the ways employers compute wages.
Employer Computations
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Some employers have their own rules for computing salaries and hourly wages for their employees. This is especially common for government employees. For example, the U.S. Office of Personnel Management uses a time factor of 2,087 hours to transform annual salaries to hourly wages. This allows for 52 workweeks of 40 hours each, plus an additional seven paid hours per year. Employers can also use predetermined multipliers to calculate premium pay for holidays or night shifts. Standard multipliers ensure that all workers receive fair pay increases for special assignments.
Minimum Wage Implications
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One reason employers and workers need to understand how to calculate wages is to ensure compliance with state and federal minimum wage laws. Some states rely on the federal minimum wage, while others impose their own minimums on employers. Minimum wage is an hourly wage rate, with workers who earn annual salaries over a certain level exempt from the hourly protections. This means that employers must clearly define work hours, answering questions such as whether to include commute time or lunch breaks.
Impact on Overtime
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Overtime rules also play into the calculation of wages and salaries. Other than certain types of exempt employees, including those who earn salaries of more than $455 each week, the federal Department of Labor mandates overtime pay through the Fair Labor Standards Act. This pay applies to weekly work beyond 40 hours and requires employers to pay at least one-and-a-half times the worker's normal hourly rate. Employers must define the start and end of each workweek to count hours and compute overtime pay accurately and consistently.
Tax Issues
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Salary and wage computations also fall under state and federal tax code regulations. Employers must record the wages they pay and submit these numbers to tax agencies, as well as to individual employees, each year. Total wages, which workers find on the W-2 forms they receive, include all types of compensation, including hourly or salaried wages, commissions, taxable tips and taxable bonus payments. Workers who receive income from multiple employers must compute their total incomes when filing tax returns to determine tax brackets and taxes owed.