Introduce the unit challenge and establish learning goals and success criteria
Every payroll system tracks four key numbers. Keep these in mind as you build your Payday Simulator:
đź’° Gross Pay
The total amount earned before any deductions. This is the promise you make to your employee.
📉 Deductions
Money taken out for taxes, insurance, retirement, and other benefits. These reduce what the employee takes home.
🏢 Employer Cost
What you pay beyond the employee's paycheck—employer taxes, benefits, insurance. This is often 20-30% more than gross pay.
đź’¸ Cash Out
The actual cash that leaves your business on payday. Gross pay + employer cost = total payroll cash need.
Cash Out = Gross Pay + Employer Cost
Gross Pay
$1731/check
Deductions
-$11250
Net Pay
$33750
Total Cash Out
$58500
Annual salary paid bi-weekly (26 pay periods)
When you agree to pay an employee, you talk in terms of Gross Pay. This is the total amount of money an employee earns before any deductions are taken out. For example, if you hire an employee for $20 per hour and they work 40 hours, their gross pay is $800. But the employee doesn't actually receive $800 in their bank account. The amount they take home is called Net Pay, and it’s what’s left over after all the taxes and other deductions are withheld.
Getting this right is critical. Under-withholding taxes means your employee could owe a lot of money at tax time. Over-withholding means they have less money in their pocket each month. To be a good employer, you need to get this exactly right.
Common Deductions:
- Federal and State Income Tax: Money withheld for the government, based on earnings and W-4 form information.
- FICA Taxes: A federal tax for Social Security (6.2%) and Medicare (1.45%).
- Other Deductions: Health insurance premiums, retirement plan contributions, etc.
Gross Pay - Deductions = Net Pay