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What is salary?

Salary (base pay) is money that employers pay periodically to their employees for the pay period they use in the company. Even within the same company pay periods for different employees can be different. Firms should make these payments in order to attract and motivate employees. That’s why companies should have competitive hourly rates or other forms of compensation to retain valuable workers or obligate them to discipline or responsibility. For example, a firm could invite volunteers to perform some work. However, this company might face a risk that some of those workers won’t show up without even given a notice when they needed them the most whereas with paid employees won’t be any problems.

Salary is one of the biggest expenditures for any company. That’s why many firms should balance between employees’ satisfaction and not to exhaust their resources.

How often employees can be compensated?

Organizations can use daily, weekly, biweekly (every two weeks), semimonthly (twice each month), monthly, quarterly, and annually pay periods. Usually a company classifies employees as hourly or salaried and uses different pay period for them. Hourly pay means that an employee will get paid for only the hours he / she worked whereas salaried ones might get fixed amount regardless that an employee didn’t fulfill the 40 hours working week. This may happen when the employer worked, for example, Monday through Thursday, but the employer couldn’t offer any work for Friday. In that case the employer would pay for 4 days of work to hourly based employees and for 5 days of work to salaried employees.

How long should an employee work?

Payroll process involves calculation of salaries which is performed by an accounting department. Accountant need to calculate how many hours each employee worked, and how many of them were in excess of 40 hours in order to calculate overtimes. Full time employment starts from 40 hours a week of work and part time is anything below that hours worked. According to the FLSA (Fair Labor Standard Act) employers should pay to their employees at least minimum wages for hours worked. Each state has different minimum per hour wage amount which is periodically adjusted according to current economic situation, cost of living and index of inflation.

What is gross earnings?

This is amount of money that employee is entitled to for the pay period based on his per hour rate and actual hours worked or fixed salary amount for the period.

What is net pay?

Net pay is actual money received by employee from employer in the paycheck after several different payroll taxes have been withheld. Withholding depends on employees’ marital status and total numbers of allowances she can claim for federal income tax purposes. If an employee wish to be taxed at a higher tax rate married one can withhold at the single rate. Workers cannot claim more dependents that they actually have, but they can claim fewer if they want more money to be withheld from their paychecks.

From paycheck withhold Federal income tax, Social Security tax (up to the annual maximum), Medicare tax, and State income tax. Depending on where you live you might not have state tax withholdings. Commonly employed foreign students do not withhold for Medicare and Social Security as long as they want to.

Social Security tax goes towards financing benefits for old-age people, survivors, and disability insurance (OASDI). Medicare tax covers hospital and other medical related bills for the elderly. Government is the largest insurer. There can be other withholding from the paycheck such as when an employee what to buy medical insurance for himself and his family.