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What Determines How Much a Worker Earns?

Primarily, money and a better life are the motivating factors for working or looking for a job. Therefore, it is important to have a benchmark for workers remuneration based on their level of productivity and agreement reached. This is because some workers are underpaid (their pay is not commensurate with the work they put in) while a few others are overpaid (they do little yet earn so much). This can cause envy and discouragement for workers that are exceptionally hard working. Hence, your payroll and pay structure must be designed to reward everyone accordingly.

So many things go into preparing a salary schedule. The workers also have a role to play as factors such as skill level, academic qualification, and competence are used to determine workers pay. What this means is that workers must take responsibility for their self-development for their market value to increase.

Here are some of the fundamental determinants of the pay of an employee:

Prevailing wage rate: Usually, this varies from state to state and province to province. The wage rate is also different for various occupations. What this means is that what an accountant earns in Chicago may be higher or lower when compared with what is obtainable in Florida. Consequently, a worker based in ‘City A’ who works for 10 hours at a rate of $5/hour will earn more than another worker in a different city or province who works for an equal number of hours but at a lesser rate. This is one of the primary causes of immigration and emigration. Cities with an attractive reward scheme for workers tend to be more populated.

The number of hours worked: Generally, people put in more hours at work to improve their pay. Every extra hour worked is added to the regular hours worked and calculation is done based on the hourly rate that prevails in the city or region. As a general rule, at a constant rate, the higher the number of hours worked, the higher the income earned. Hence, a direct relationship exists between income and hours worked at a constant wage rate.

Tax and loan: When a worker books a loan, he or she should expect that income will be slashed when liquidation is done. In the same vein, tax deductions are always taken from the wages and salaries of workers. If a company fails to remit tax proceeds accordingly, stiff sanctions may apply. The percentage to be deducted as business and personal income tax is usually determined by the office of the IRS (Internal Revenue Service). Taxes such as state tax, federal tax, and Medicare are under this category.

All in all, the mathematical formula for calculating how much a worker will earn is:

Income = (Hourly rate x number of hours worked) – deductions

Also, it is expedient for employees and job seekers to equip themselves with as much knowledge as possible so that they won’t be priced down by employers who are keen on exploitation. Follow us on Twitter.

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