7. Income and Taxation

Lesson

Aside from their regular wages and salaries, some workers may be entitled to additional payments in the form of overtime, bonuses and allowances. These are typically paid to employees who work above and beyond what are considered normal work duties.

Employment contracts for wage earners will specify the number of hours for a normal or standard working week. For a full-time wage earner, the maximum number of hours in a normal working week is $38$38 hours, and for each of these hours, they receive a normal rate of pay (also known as a base rate or standard rate).

For any hours worked in addition to their normal hours, employees are entitled to a higher rate of pay, known as a penalty rate. These rates apply for employees who work:

- Weekends
- Public holidays
- Overtime
- Late night shifts
- Early morning shifts

Often the word 'overtime' refers to any hours that are worked outside 'normal' hours.

The two most common overtime or penalty rates are time-and-a-half and double time.

$\text{Time-and-a-half rate }=1.5\times\text{normal rate }$Time-and-a-half rate =1.5×normal rate

$\text{Double time rate }=2\times\text{normal rate }$Double time rate =2×normal rate

Hayley works in a retail store. She is paid a rate of $\$19.25$$19.25 per hour, for a $35$35-hour week. If she works overtime, she is paid time-and-a-half for the first three hours and double-time for any additional hours.

Calculate Hayley's weekly pay if she works:

- $30$30 hours
- $37$37 hours
- $42$42 hours

**Solution**:

- For a $30$30 hour week, no overtime hours have been worked, so we multiply the number of hours by the normal rate of pay:
Weekly pay $=$= $19.25\times30$19.25×30 $=$= $\$577.50$$577.50 - For a $37$37 hour week, there are $2$2 hours of overtime. The first $35$35 hours are paid at the normal rate ($19.25\times35$19.25×35) and the $2$2 hours of overtime are paid at the time-and-a-half rate ($19.25\times1.5\times2$19.25×1.5×2).
Weekly pay $=$= $\left(19.25\times35\right)+\left(19.25\times1.5\times2\right)$(19.25×35)+(19.25×1.5×2) $=$= $673.75+57.75$673.75+57.75 $=$= $\$731.50$$731.50 - For a $42$42 hour week, there are $7$7 hours of overtime. The first $35$35 hours are paid at the normal rate ($19.25\times35$19.25×35). The first $3$3 hours of overtime are paid at the time-and-a-half rate ($19.25\times1.5\times3$19.25×1.5×3) and the remaining $4$4 hours of overtime are paid at the double-time rate ($19.25\times2\times4$19.25×2×4).
weekly pay $=$= $\left(19.25\times35\right)+\left(19.25\times1.5\times3\right)+\left(19.25\times2\times4\right)$(19.25×35)+(19.25×1.5×3)+(19.25×2×4) $=$= $673.75+86.625+154$673.75+86.625+154 $=$= $914.375$914.375 $=$= $\$914.38$$914.38 (Rounded to the nearest cent)

For an hourly rate of $\$30$$30, calculate the income earned, to the nearest cent, for working the following hours:

$35$35 hours at normal rates and $6$6 hours at time-and-a-half

$28$28 hours at normal rates and $5$5 hours at double time

$29$29 hours at normal rates, $9$9 hours at time-and-a-half and $7$7 hours at double time

$8$8 hours at time-and-a-half and $7$7 hours at double time

A bonus is a special one-time annual payment to an employee, usually given for achieving certain targets in the workplace. It is a payment made in addition to their regular wage or salary.

Bonuses are commonly given at the end of the calendar year, around Christmas time, although they can be given at any time of the year. They may be paid as a lump sum or as a percentage of a worker's pay.

Alison owns a business that has had a very successful year. She would like to acknowledge the efforts of her employees by paying them a Christmas bonus of $8%$8% of one month's salary. Calculate employee John's bonus if he earns $\$52000$$52000 per annum.

**Solution**:

Our first step is to calculate the amount John is paid each month by dividing his salary by $12$12. We can then calculate $8%$8% of one months salary.

monthly income | $=$= | $\frac{52000}{12}$5200012 | ||

$=$= | $\$4333.33$$4333.33 | |||

bonus | $=$= | $8%$8%$\text{of }$of $4333.33$4333.33 | ||

$=$= | $0.08\times4333.33$0.08×4333.33 | |||

$=$= | $346.666$346.666... | |||

$=$= | $\$346.67$$346.67 | (rounded to the nearest cent) |

Calculate the value of a $7%$7% annual bonus, to the nearest cent, for an income of:

$\$88000$$88000 per annum

$\$7000$$7000 per month

$\$3900$$3900 per fortnight

$\$1500$$1500 per week

Allowances are additional payments given to employees who:

- Have a particular skill or perform specialist tasks (i.e. an employee who holds a first aid certificate or performs duties as a safety officer)
- Work in dangerous or unpleasant conditions (i.e. hazardous environments, underground or at heights, night shifts, isolated workplaces)
- Use their own tools at work
- Various other expenses (i.e. special travel or clothing allowances paid by the employer)

An allowance is paid in addition to the normal rate of pay. Some allowances may be paid for every hour worked, while others may be paid only for specific hours (while working underground, for example). Workers can receive multiple allowances.

Allowances and annual leave loading

Remember that annual leave loading is calculated as $17.5%$17.5% of the **normal** rate of pay, which does **not** usually include overtime, penalty rates, bonuses or allowances.

Jared is a window-cleaner who earns $\$32.60$$32.60 per hour. He receives an additional allowance of $\$6.80$$6.80 for every hour he spends cleaning the exterior windows of skyscrapers.

Calculate Jared's total pay for working a $38$38-hour week, if he spends six of those hours cleaning the exterior windows of skyscrapers.

**Solution**:

Jared's total pay includes $38$38 hours at his normal rate of $\$32.60$$32.60 as well as $6$6 hours at his allowance rate of $\$6.80$$6.80.

Total pay | $=$= | $\text{normal pay }+\text{allowance }$normal pay +allowance |

$=$= | $\left(32.60\times38\right)+\left(6.80\times6\right)$(32.60×38)+(6.80×6) | |

$=$= | $1238.80+40.80$1238.80+40.80 | |

$=$= | $\$1279.60$$1279.60 |

Dave, a delivery driver, is paid $\$10$$10 per hour, plus a uniform allowance of $\$15$$15 per week, $\$92$$92 per week for depreciation on his car, and a travel allowance of $37$37 cents per kilometre. Calculate his weekly income, to the nearest cent, if he worked $28$28 hours and travelled $1284$1284 km.

models relevant financial situations using appropriate tools