3-1: Employee Benefits and Earnings

Employee benefits are payments to employees for nonworking hours and to insurance and retirement programs. As a teacher, some of my benefits include partial payment for my family's health insurance, personal days, and sick days. Businesses provide benefits to employees to attract and keep workers or as a reward for continuous service. Providing benefits to employees is not required, however.

In this chapter, the benefits that will be provided for employees in MasterSport are vacation time, sick leave time, and personal leave time. What is unique about MasterSports system is that employees earn their right to vacation time, sick leave time, and personal leave time each pay period. On page 64 of your textbook, the following table is provided:

Benefits
Earned After 12 Months
Biweekly After 12 Months
Minimum Time Blocks
Maximum Carry Over
Vacation time hours
40
4
4
120
Sick leave time hours
0
2
1
80
Personal leave time hours
0
1
1
24

This is how to read this table. No employee is entitled to vacation, sick leave, or personal leave until they have worked 12 months (column 2). After the first year of service, the employee will be given 40 vacation hours, 0 sick leave hours, and 0 personal leave hours.

After the first year of service, the employee will begin earning more vacation time, sick leave, and personal leave time (column 3). For every biweekly pay period the employee works, the employee will earn 4 hours vacation, 2 hours sick leave, and 1 hour personal leave. Therefore, throughout the course of the next year, the employee is earning more and more vacation, sick leave, and personal leave time.

If the employee chooses to use any of his/her vacation, sick, or personal time, he/she must take time in the following increments: minimum of 4 hours vacation, minimum of 1 hour sick leave, minimum of 1 hour personal leave (column 4).

If the employee doesn't use his/her vacation, sick leave, or personal time, the time will accumulate or carry-over for the next year (column 5). However, employees may not accumulate or carry-over more than 120 hours vacation time, 80 hours sick leave time, or 24 hours personal leave time.

Keeping track of benefits can be complicated. For businesses that calculate benefits like MasterSports, there must be a systematic way to keep track of the benefits the employee has earned. That is what the Benefits Record is for--to keep track of employee benefit time.

Employee Benefits Record

A benefits record is started new each year. The record shows the amount of vacation, sick leave, and personal time used and earned throughout the year. If an employee wonders how much time is available for these benefits, the benefits record is the place to look.

For the Work Together problem, you will be creating a benefits record for Susan Fulton. The information about her (employee number, department, date of employment) is included in the problem instructions. You are given two weeks worth of information about her.

Vacation:

  • The beginning hours available for vacation time is available in the instructions.
  • Susan worked 80 hours during the pay period 1/2, so earned 4 hours vacation time. Enter 4 hours in the hours earned column.
  • Susan can only use vacation, sick leave, or personal time if approved by her supervisor. The problem instructions provide the time Susan used for this pay period. She used 16 hours vacation time.
  • To calculate how many hours Susan has available at the end of the pay period, use this formula: beginning hours available + hours earned - hours used.
  • The hours available at the end of one pay period is the beginning hours available the next pay period.
  • Repeat this process for the pay period 1/16.

Sick Leave:

  • The beginning hours available for sick time is available in the instructions.
  • Susan worked 80 hours during the pay period 1/2, so earned 2 hours sick time. Enter 2 hours in the hours earned column.
  • Susan can only use vacation, sick leave, or personal time if approved by her supervisor. The problem instructions provide the time Susan used for this pay period. She used 0 hours sick time.
  • To calculate how many hours Susan has available at the end of the pay period, use this formula: beginning hours available + hours earned - hours used.
  • The hours available at the end of one pay period is the beginning hours available the next pay period.
  • Repeat this process for the pay period 1/16.

Personal Time:

  • The beginning hours available for personal time is available in the instructions.
  • Susan worked 80 hours during the pay period 1/2, so earned 1 hour personal time. Enter 1 hour in the hours earned column.
  • Susan can only use vacation, sick leave, or personal time if approved by her supervisor. The problem instructions provide the time Susan used for this pay period. She used 2 hours personal time.
  • To calculate how many hours Susan has available at the end of the pay period, use this formula: beginning hours available + hours earned - hours used.
  • The hours available at the end of one pay period is the beginning hours available the next pay period.
  • Repeat this process for the pay period 1/16.

For the Work Together problem, some employees are paid hourly and other employees are paid a base salary plus commission.

To calculate hourly earnings:

  • Regular hours worked X regular rate = Regular earnings
  • Calculate the overtime rate: hour rate X 1.5
  • Calculate the overtime hours X the overtime rate = Overtime earnings
  • Regular earnings + Overtime earnings = Total earnings

One employee in the Work Together problem is paid a salary plus commission. A salaried employee earns a set amount of money, regardless of the time worked. Salaried employees usually are not required to report hours worked and are not paid overtime.

As an incentive to sell more product or to manage a department well, some salaried employees are paid salary plus commission. That means they get paid a set amount each pay period, but then at the end of the month, they are paid a percentage of the departments sales. A good example of a typical job that may pay salary plus commission is a car salesman. A car salesman will usually get a small salary paid each pay period, but will then earn a percentage of what he/she sells. This provides the salesman with an incentive to sell cars. If he/she sells more cars, he/she makes more money.

Commissions Record

The top part of the commission record information is provided in the problem instructions. In that information, you will be given the base amount to be paid each pay period plus the percentage rate to calculate commission.

The bottom part of the commission record is for calculating the commission. Commission is based on the sales made per department. The employee will earn a percentage of department sales. To calculate commission, follow these steps:

  1. List sales on account and credit card sales. Total these to calculate the total sales made by the department.
  2. The store most likely did not receive income for all of the sales because customers will return items and the store will provide discounts for those that pay quickly. The next step is to total the sales discounts and returns. These discounts and returns must be subtracted from the sales total to come up with net sales. Net sales is what is left after discounts and returns.
  3. The employee's commission will be based on net sales. In this situation, the employee will earn 1% of net sales. To calculate the employees commission, take the net sales and times by the percentage rate.

In the situation above, the employee will be paid a salary plus commission. In other words, this employee will earn $1,200 in salary plus $236.53 in commission for total earnings of $1,436.53.

ASSIGNMENTS

  1. WT 3-1 (self-check)
  2. OYO 3-1 (self-check)
  3. Application 3-1
  4. Application 3-2
  5. Application 3-3

Special instructions for Applications 3-2 and 3-3: These two problems go together.

  1. Prepare benefits cards for three employees. Beginning hours available is taken from the benefits authorization cards.
  2. Assume these three employees worked 80 hours per pay period and therefore earn 4 hours vacation, 2 hours sick time, and 1 hour personal leave each pay period.
  3. Transfer each employee's time used from the benefits authorization form to the benefits record.
  4. Calculate benefits time available for the week ending 3/12.

Benefits Authorization

Benefits Record

Calculate timecards like we did in Accounting I. Round time to the nearest quarter hour. List time worked in the hours worked column of the time card. Employees that are being paid benefits will be paid for time not worked. After you have calculated the time worked, go back to the time card and enter in the benefits being used from the benefits authorization form. Precede all benefits hours with a code that signifies the benefit: V=Vacation, S=Sick Time, P=Personal Time (see example below).

Timecard

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