Unit 4: Money Management

Lesson 2: Benefits of the Job

Topic 1: Understanding Your Pay and Paycheck

OBJECTIVES

1. Differentiate between gross income and net income.

2. Identify income on a check.

3. Identify deductions on a check.

4. Identify benefits on a check.

MATERIALS
sample check stubs

calendar

calculators

copies of students' check stubs

SUPPLEMENTAL RESOURCES
Money Management – A $13.95 book by Educational Design, Inc. (1800 221-9372).

INSTRUCTIONAL FORMAT
This lesson will help students understand the income they earn, the deductions they have, and how to figure this out when it is printed on their check stub. When a student is starting a job at $6 an hour, he needs to understand that he will not be paid $480 every two weeks. With deductions for taxes and his share of benefits such as disability and health insurance, his take-home pay is going to be significantly less than $480. Use the copies of checks provided and/or check stubs from the students to help them understand their paycheck.

1. Discuss the time delay between the end of a pay period and a person's paycheck. Companies deal with this situation differently. Some companies have a one-week delay, some have a two-week delay, and some companies have no delay at all. If needed, use a calendar to explain this process. On the sample check stubs, John, Jane, and Fred are getting paid on 2/21/98 and the pay period ended on 2/14/98.
   
   

2. Discuss the difference between gross pay (the total amount you earn during a pay period) and net pay (the total amount you are paid after deductions). Have students identify the two different figures on the sample checks or the check stubs supplied by the students.
   
   

3. Discuss how a person's income is figured. Usually, this information is available on the check stub. Identify the rate of pay and the number of hours being paid at that rate. Multiply those two numbers. If you have two different rates of pay, you will need to add the different totals. For example, if a person is paid $6 an hour for 40 hours of work and makes time and a half for eight hours of overtime, her total gross pay is $312. See chart below.
   

   Rate of pay	Hours	Total
   $6.00-regular hrs	40	$240.00
   $9.00-overtime	8	$  72.00
   	gross income	$312.00

   Have the students figure out gross income for the following people:

   • John gets paid $5.85/hour, and he works 40 hours in the pay period.

   • Joe gets paid $6.15/hour, and he works 35 hours in the pay period.

   • Sally gets paid$6/hour, and she works 40 hours plus 16 hours of overtime (time and a half=$9/hour) in the pay period.

   • Sue gets paid $5.95/hour, and she works 34 hours and takes two paid days of vacation (16 hours). Sue does not get paid overtime. She gets 50 hours at $5.95/hour.
     
     Come up with additional examples.
     
     

4. Discuss deductions on the check. Most people understand that they will get some money taken out of their check for taxes and other benefits. However, most people are alarmed at the amount. Review the following general categories of deductions.
   
   

   • TAXES – When taxes are taken out, all workers have federal, state, Social Security (FICA), and Medicare taxes deducted from their earnings. Depending on where a person lives, she may also have local (city and/or county) taxes taken out. FICA and Medicare taxes are based on a percentage of a person's earnings. The more a person makes, the more he pays (don't encourage people to make less money). Students might be interested to know that their employer pays for half of the total amount of FICA and Medicare taxes that the government collects. Federal and state taxes are deducted based on an estimate of how much the person will owe in yearly taxes. The estimated amount is based on federal and state tax withholding forms that all employees fill out. This information is reviewed in a lesson titled "First Day on the Job" in the Employability unit. In general, the more exemptions a person claims on these forms, the less they will have taken out of each check. This is illustrated in the sample checks of Jane Doe and John Doe. Jane does not have any children, and will not get tax deductions for having dependents. She will have to pay more taxes, so she has more deducted from each check. John, on the other hand, has children and will get tax deductions for having dependents. Because he will not have to pay as much at the end of the year, he has less taken out of his check every two weeks. The Bureau of Business Practice has a helpful pamphlet that you can have sent to you by calling 1800 243-0876. It is titled How to Make Sure You Have the Right Tax Withheld.
     
     

   • BENEFITS – Most companies offer a choice of benefits. If a person gets lucky, the employer will pay the full cost of the benefits. Most likely, the employee will have to pay for part of the cost. A common example of this is health insurance. The cost of health insurance offered by your company may be $250 per month. The company may pay $180 and you have to pay $70. While $70 a month may seem expensive, it is cheaper than $250, and much cheaper if a person has to pay for her own doctor's bills. If the employee in the above example was paid two times a month, he would have $35 taken out of each paycheck to cover the $70 expense each month. Other benefits which may require partial payment include long-term disability, dental insurance, and retirement fund. The cost of the employee's portion of the benefits is added together with the taxes to come up with the total amount of deductions.
     
     

5. Have the students look at different check stubs, and ask them to identify the different deductions. For example, "Show me where the federal tax deduction is on the stub. How much is it?" "Add up all of the deductions. How much is it?" Test their comprehension further by asking them the following questions about the supplied check stubs.
   
   

   • Why do Jane and Fred, who are both single, pay less for their health insurance coverage than John, who has children? (Health coverage for a family costs more than coverage for a single person)
     
     

   • Jane and Fred claim the same number of exemptions. Why does Fred pay more taxes? (He makes more money).
     
     

   • Does Metro Services offer paid vacation time? (Yes, Jane was paid for a vacation day).
     

SIGNS OF GENERALIZATION
Students have a better understanding of their net pay and how it is figured out. When they change jobs or their employer changes how the information is presented on the check stub, they are able to adapt and identify the appropriate information.

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