Chapter 11
Payroll
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Before discussing how to calculate gross pay and how to determine which deductions must be
subtracted from gross pay, it is important to determine the pay frequency when dealing with
payroll.The amount of gross pay and deductions on each paycheque are affected by the pay period
(pay frequency). Pay period refers to the number of times an employee is paid during one year.The
table below shows how many pay periods there are in a year for the most common pay frequencies.
Pay Frequency
Number of Pay Periods in a Year
Weekly
52
Bi-weekly
26
Semi-monthly
24
Monthly
12
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FIGURE 11.1
Gross Pay
When an employee is paid, employers generally pay either with a salary or an hourly rate. A salary
is a set annual amount that is then divided by the number of pay periods to determine the gross
pay for each period. A sales manager who is paid $52,000 per year would earn $1,000 per week. If
he was paid on a bi-weekly basis, his gross pay would be $2,000 for each pay period.
An hourly rate is a set dollar amount for each hour worked and is multiplied by the hours
worked in a period to determine the gross pay for the period. If a factory worker is paid $17.00
per hour and he works for 65 hours in a two-week period, his gross pay would be $1,105
(65 hours x $17.00 per hour = $1,105).
In addition to regular pay, employers must also pay for statutory holidays and overtime. Overtime
pay is owed for any hours worked beyond a certain number of hours per period. Employment
standards in each jurisdiction specify what is considered overtime and how much should be paid
for each overtime hour. In many cases, overtime hours are paid at 1.5 times the regular hourly rate.
Suppose a person works 48 hours in a week, and any hours over 40 must be paid at 1.5 times the
regular hourly rate. Assuming the hourly rate is $15 per hour, the overtime rate would be $22.50
per hour ($15 x 1.5). Gross pay would be calculated as shown below.
Regular pay
40 hours × $15/hour =
$600
Overtime pay 8 hours × ($15 x 1.5) =
$180
Gross pay
$780
Employees are also generally paid their regular wages for statutory holidays (such as Christmas
day), even though they do not work on those days. If an employee does work on a statutory holiday,
they are typically paid their regular wages for the statutory holiday, plus 1.5 times their regular
hourly rate for the hours they actually work. Again, this may vary slightly in different jurisdictions.
Vacation pay is also an amount that must be paid to employees. Generally, employers must provide
two weeks or 4% of the employee’s gross pay as vacation amounts.This can vary from jurisdiction to
