Wages and salaries
Wages and salaries are two different ways of paying workers to carry out a job.
In general, wages refer to hourly pay and salaries refer to annual pay.
Wages are paid based on the amount of hours worked and then multiplied by an hourly rate of pay.
Salaries are based on an annual amount that is then paid monthly.
Most workers are also entitled to holiday pay.
Wage
This is usually an amount paid to a person for the hours that they actually work.
Workers who receive a wage usually have an hourly rate and are paid weekly.
They are also entitled to holiday pay based on the number of days they have worked.
Question
Sian has a Saturday job at a local caf茅.
Her rate of pay is \(\pounds{6.50}\) per hour worked.
She works from \({9.00am}\) until \({5.30pm}\) and is allowed a \({30}\) minute break for her lunch.
What will Sian's wage be?
Answer
Hours worked \(= {8~hours}\)
Wage \(={8}\times\pounds{6.50}\)
\(=\pounds{52.00}\)
Question 2
If Sian鈥檚 hours increase to \({3}\) days a week, what will her weekly wage be?
Answer
We need to multiply Sian鈥檚 daily pay by \({3}\) to get her weekly wage:
\(\pounds{52}\times{3}=\pounds{156}\)
Salary
A salary is an amount that a person is paid per year.
A twelfth (\(\frac{1}{12}\)) of the total salary is usually paid each month, based on an agreed number of hours worked.
This also takes into account holiday pay.
Question
Davinder works as a community nurse.
He has a salary of \(\pounds{30,000}\) per year.
How much is Davinder paid each month?
Answer
Monthly pay \(=\pounds{30,000}\div{12}\)
\(=\pounds{2,500}\)
Deductions such as tax and National Insurance will be made from Davinder鈥檚 salary.
He will receive less than \(\pounds{2,500}\) per month.
Deductions from wages or salaries
Income tax
When workers earn more than a certain amount (called the tax threshold), they have to pay .
For example, during the tax year from April \({2021}\) to April \({2022}\), an individual would have to pay income tax on any income over \(\pounds{12,570}\).
The first \(\pounds{12,570}\) is called a tax allowance, and a person is usually allowed to earn this amount without having to pay any income tax on it.
Of the income that is to be taxed, the first \(\pounds{37,700}\) is taxed at \({20}\%\), and any income over this amount is taxed at a higher rate.
Question
Helen has an annual salary of \(\pounds{36,000}\) for the tax year \(2021 - 2022\).
She has a tax allowance of \(\pounds{12,570}\).
Calculate how much income tax she will have to pay during the year.
Answer
Helen has a tax allowance of \(\pounds{12,570}\), so she will only have to pay income tax on \(\pounds{23,430}\).
Her income is under \(\pounds{37,700}\) therefore income tax is charged at the rate of \({20}\%\).
\({20}\%\) of \(\pounds{23,430}\) \(={0.2}\times{23,430}\)
\(=\pounds{4,686}\)
Helen will have to pay \(\pounds{4,686}\) as income tax.
Key phrases
Gross pay - the total wage or salary before deductions have been made.
Net pay - the total wage or salary after deductions have been made. This is also referred to as 'take home pay'.
National Insurance (NI) contributions
This is an amount taken from wages and salaries to contribute towards benefits such as your state pension.
For the year \(2021 - 2022\), the rate of Deductions from gross pay which are paid to HMRC towards some benefits, including the state pension. is \({12}\%\) on earnings between \(\pounds{184}\) and \(\pounds{967}\) a week, or between \(\pounds{9,568}\) and \(\pounds{50,270}\) per year.
If you earn below \(\pounds{184}\) a week, you do not have to make any National Insurance contributions.
If you earn more than \(\pounds{967}\) a week, then you also have to pay \({2}\%\) on any further earnings.
Earnings under \(\pounds{184}\) a week: \({0}\%\) goes towards National Insurance contributions
Earnings between \(\pounds{184}\) and \(\pounds{967}\) a week: \({12}\%\) goes towards National Insurance contributions
Earnings over \(\pounds{967}\) a week: \({2}\%\) goes towards National Insurance contributions
Question
Dayna works as an actress.
Her weekly wage is \(\pounds{1,200}\).
How much National Insurance does Dayna have to pay each week?
Answer
Dayna's total weekly wage is \(\pounds{1,200}\).
Dayna does not need to pay National Insurance on the first \(\pounds{184}\) that she earns.
She will pay \({12}\%\) National Insurance on her earnings between \(\pounds{184}\) and \(\pounds{967}\) (which is \(\pounds{967}-\pounds{184}=\pounds{783}\)).
For the remaining \(\pounds{233}\) that Dayna earns, she'll pay \({2}\%\) National Insurance
In summary:
\(\pounds{184}\) at \({0}\%\)
\(\pounds{967}-\pounds{184}=\pounds{783}\) at \({12}\%\)
\(\pounds{1,200}-\pounds{967}=\pounds{233}\) at \({2}\%\)
Total National Insurance paid \(={12}\%\) of \(\pounds{783}\) \(+~{2}\%\) of \(\pounds{233}\)
\(=({0.12}\times{783})+({0.02}\times{233})\)
\(={93.96}+{4.66}\)
\(=\pounds{98.62}\) per week
Utility bills (household bills)
The term 'utilities' refers to services that we use at home or at a business address.
The main utilities we need are water, electricity and gas.
Although most homes have a mains water service, some may have their own well, eg on a rural farm.
All homes use electricity nowadays, although some rural households may generate their own electricity.
Not every home has a gas supply, but a significant number of homes and businesses do use gas for heating and cooking.
Other forms of energy used in homes are coal and oil.
Think about the type of energy that is used to heat your home.
Electricity and gas bills
Electricity can be charged at different rates, called tariffs.
The tariffs can vary depending on the time of day, eg electricity used in the night can sometimes be cheaper than electricity used during the daytime.
The unit used to measure amounts of electricity is the kilowatt-hour \(({kWh})\).
The unit used to measure amounts of gas is the therm \(({thm})\).
VAT (value-added tax) is added to electricity and gas bills at a rate of \({5}\%\).
Other bills or contracts
Other bills or contracts
Phone
Although not necessarily considered to be a utility, most people have a mobile phone or a landline.
Landline phone bill
A landline phone bill usually has two main elements:
- the cost of the units used
- line rental
There are further optional features that can be chosen, eg caller recognition, call barring.
Mobile phone - contract
Purchasing a mobile phone on contract means that you agree to pay a monthly bill for a set amount of time, eg a year.
Signing up to a contract will give you a set amount of calling minutes, text messages and data per month.
There are usually charges for exceeding your allocated minutes, text messages and data.
Mobile phone - 'pay as you go'
With this type of plan you pay for only the units that you use.
The unit costs are usually higher than a contract mobile but there aren't any fixed monthly fees.
Question
Carmel is considering getting a mobile phone on contract.
She has chosen three possible companies that offer good mobile reception in her home town.
She works out that she needs approximately \({750}\) calling minutes and \({2,500}\) texts a month.
At the moment she makes very little use of her data allowance.
Use the information below to choose the best company and tariff for Carmel.
Answer
Carmel needs \({750}\) minutes and \({2,500}\) texts.
Here are the suitable options for her:
Company A - Option \({3}\) at \(\pounds{27}\) per month
Company B - Option \({2}\) (\(\pounds{23}\)) and option \({3}\) (\(\pounds{28}\))
Company C - Option \({3}\) (\(\pounds{22.30}\))
The cheapest contract that suits Carmel is offered by company C, at \(\pounds{22.30}\) per month.
School trips abroad
Converting currencies
When changing from one currency to another make sure you know whether to multiply or divide by the exchange rate.
If you are given the exchange rate from pounds to euros:
- you multiply by the exchange rate when you are changing pounds to euros
- you divide by the exchange rate when you are changing back into pounds
Question
Ali is going on a school trip to Paris.
He needs to exchange pounds for euros before leaving.
When changing pounds into euros, the exchange bureau can only supply euros in notes.
The lowest value note is the \({5}~{euro}\).
If the exchange rate is \(\pounds{1}={1.24}~{euro}\), how many euros would Ali receive for \(\pounds{300}\), and how much change will he get?
Answer
Value of \(\pounds{300}\) in \({euros}\) \(={300}\times{1.24}={372}\)
Ali will receive \({370}~euros\).
This will cost: \({370}\div{1.24}=\pounds{298.3871}\)
Ali will pay \(\pounds{298.39}\) for \({370}~euros\), and will receive \(\pounds{1.61}\) in change.
Test section
Question 1
Siobhan is paid at a rate of \(\pounds{8.00}\) an hour.
She works Monday to Friday, from \({9.00am}\) until \({5.30pm}\), taking half an hour for lunch every day. Her lunch break is unpaid.
What is her weekly wage?
Answer
To work out her weekly wage, calculate Siobhan鈥檚 daily wage (excluding the lunch break) and then multiply this by \({5}\).
Therefore \(\pounds{64}\times{5}=\pounds{320}\).
Question 2
Luke has an annual salary of \(\pounds{34,000}\).
He has a tax allowance of \(\pounds{10,000}\), and pays the basic rate of income tax at \({20}\%\).
How much income tax is deducted from his monthly pay?
Answer
Subtract Luke鈥檚 tax allowance of \(\pounds{10,000}\) from his salary before finding the \({20}\%\) tax.
Then divide by \({12}\) to get the monthly deduction of \(\pounds{400}\)
Question 3
Mollie starts a new mobile phone contract, set at \(\pounds{13.99}\) per month for a minimum of a year.
How much will the phone contract cost her in a year?
Answer
\({12}\times\pounds{13.99}=\pounds{167.88}\)
Question 4
A school organises a trip to a museum.
There are \({58}\) pupils and \({4}\) teachers in the group
Pupil tickets are \(\pounds{3.50}\) each and teacher tickets are \(\pounds{5}\) each.
What is the total cost of the tickets?
Answer
Calculate the cost of the pupil tickets, \({58}\times\pounds{3.50}\), add the price of the teacher tickets, \({4}\times\pounds{5}\).
This should give a total of \(\pounds{223.00}\).
Question 5
A youth group is taking \({48}\) members to a pop concert.
The coach costs \(\pounds{660}\) and the tickets are \(\pounds{21}\) each.
What is the cost per person to go to the concert?
Answer
To get the the cost per member for the coach, divide \(\pounds{660}\) with \({48}\) to give \(\pounds{13.75}\)
Add this to the price of the ticket \(\pounds{21}\).
This gives a total of \(\pounds{34.75}\).
Question 6
Anita is going on a school skiing trip to Italy and wishes to change \(\pounds{450}\) into euros.
The exchange rate at the time of travel is \(\pounds{1}={1.16}~euro\).
What is the value of \(\pounds{450}\) in euros?
Answer
Multiply \({450}\) by \({1.16}\) to get \(\euro{522}\).
Question 7
Sean receives a quarterly gas bill.
The meter reading at the start of the period was \({1374}\) and the meter reading at the end of the period was \({1436}\).
If each unit of gas costs \({51.5}~{pence}\) per unit, what was the amount charged for the gas used, in pounds?
Answer
You need to subtract the meter readings, then multiply by the unit cost, in pence, and finally divided by \({100}\) to change into pounds, to give the correct answer of \(\pounds{31.93}\).
Question 8
Sian receives a quarterly electricity bill.
The meter reading at the start of the period was \({7382}\) and the meter reading at the end of the period was \({8626}\).
The cost of electricity is \({27.4}~{pence}\) per unit.
If VAT is added to the cost of the units, at \({5}\%\), what is the total amount charged for the electricity used, in pounds?
Answer
\({8626}-{7382}={1244}\) units used.
Calculate the price of the units by multiplying by \({27.4}~{pence}\).
After converting pence into pounds \((\pounds{340.86})\), add VAT at the correct rate of \({5}\%\).
\({0.05}\times{340.86}={17.04}\).
This gives the correct total of \(\pounds{357.90}\).
Question 9
Alex has just passed his driving test and wants to buy a second-hand car.
The car that he wishes to buy costs \(\pounds{4,499}\).
He can鈥檛 afford the full price so he arranges a loan with the garage.
He pays an initial amount of \(\pounds{599}\), and agrees to pay \(\pounds{200}\) per month over the next two years (\({24}\) months).
How much more does he have to pay for the car when paying in instalments?
Answer
The monthly repayments work out as \({24}\times\pounds{200}=\pounds{4,800}\).
Add to this the \(\pounds{599}\) initial payment.
This shows that Alex has paid \(\pounds{5,399}\) for the car, which is \(\pounds{900}\) more than the displayed price.
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