Your tech company is doing very well and growing at a steady pace including hiring new employees. During part of the new hire orientation you must help employees understand how their payroll check is calculated. The new employee's salary is $40,000 annually.

Question

Step 1: Payroll Information >> Your payroll spreadsheet should include formulas for the following:
Employee's gross pay
Employee's payroll deductions
Employee's net pay

Answer 1

To help the new employees understand how their payroll check is calculated and to create a payroll spreadsheet with the necessary formulas, follow these steps:

Payroll Spreadsheet Setup

Assumptions:

• The annual salary is $40,000.
• We will consider the following common deductions as examples:
  • Federal Income Tax: 15%
  • Social Security Tax: 6.2%
  • Medicare Tax: 1.45%
  • State Income Tax: 5% (variable based on the state, use 5% for this example)

Spreadsheet Layout

| A | B | |-----------------------|------------| | Description | Amount | | Annual Salary | $40,000 | | Gross Pay (Monthly) | =B2/12 | | Federal Tax Deduction | =B415% | | Social Security Deduction | =B46.2% | | Medicare Deduction | =B41.45% | | State Tax Deduction | =B45% | | Total Deductions | =B6+B7+B8+B9 | | Net Pay (Monthly) | =B4-B10 |

Explanation of Each Calculation

1. Annual Salary (B2): Enter the fixed annual salary.

   • Example: 40000

2. Gross Pay (Monthly) (B4): Calculate by dividing the annual salary by 12 months.

   • Formula: =B2/12
   • Result: 3333.33

3. Federal Tax Deduction (B6): Calculate based on the gross monthly pay.

   • Formula: =B4*15%
   • Result: 500.00

4. Social Security Deduction (B7): Calculate using the Social Security rate.

   • Formula: =B4*6.2%
   • Result: 206.67

5. Medicare Deduction (B8): Calculate using the Medicare rate.

   • Formula: =B4*1.45%
   • Result: 48.33

6. State Tax Deduction (B9): Calculate using the state tax rate.

   • Formula: =B4*5%
   • Result: 166.67

7. Total Deductions (B10): Sum of all deductions calculated.

   • Formula: =B6+B7+B8+B9
   • Result: 921.67

8. Net Pay (Monthly) (B11): Calculate by subtracting total deductions from gross pay.

   • Formula: =B4-B10
   • Result: 2411.66

Final Padding for Clarity:

Your resulting spreadsheet should look like this filled out with the formulas where applicable. Replace B2 with the cell where the annual salary is stored.

Example Calculated Summarized View:

| A | B | |-----------------------|------------| | Description | Amount | | Annual Salary | $40,000 | | Gross Pay (Monthly) | $3,333.33 | | Federal Tax Deduction | $500.00 | | Social Security Deduction | $206.67 | | Medicare Deduction | $48.33 | | State Tax Deduction | $166.67 | | Total Deductions | $921.67 | | Net Pay (Monthly) | $2,411.66 |

This layout and the associated formulas help new employees see clearly how their pay is calculated and provides a transparent view of their deductions.