Earning Money
Salaries and wages, overtime and penalty rates, commission, piecework, royalties, leave loading, taxable income, income tax from tax tables, PAYG, the Medicare levy, net pay and tax refunds, with step-by-step worked examples.
Contents
1.What you need to know
Earning money covers how people are paid and how much tax they pay. It was worth about 3 marks in the sample HSC paper, usually as a short calculation from a pay slip or a tax table.
- Ways of earning: salary, wages with overtime and penalty rates, commission (including sliding scale), piecework, royalties, bonuses, allowances and earning as a sole trader.
- Convert between weekly, fortnightly, monthly and yearly pay, with 1 year = 52 weeks.
- Leave loading as a percentage of normal pay.
- Taxable income after allowable deductions.
- Income tax from a tax table, PAYG tax withheld from pay, and the Medicare levy.
- Net pay, and whether a tax return gives a refund or a debt.
- Spreadsheets to model income and tax.
2.Salaries, wages and penalty rates
A salary is a fixed amount per year, paid in equal parts. A wage is paid per hour worked.
| Period | From an annual salary |
|---|---|
| Weekly | divide by 52 |
| Fortnightly | divide by 26 |
| Monthly | divide by 12 |
For example, a salary of $72 800 is $1400 per week, $2800 per fortnight and $6066.67 per month. Notice that a month is not 4 weeks: 4 weeks of pay would only be $5600.
Overtime is time worked beyond normal hours, and penalty rates are paid for weekends and public holidays. Both are multiples of the normal hourly rate:
- time-and-a-half: each hour is paid at the normal rate
- double time: each hour is paid at the normal rate
Worked example: a week with overtime and Sunday work
Lena earns $31.20 per hour for a 38-hour week. Last week she also worked 3 hours of overtime at time-and-a-half and 2 hours on Sunday at double time. Find her gross pay.
Work out each part separately.
Her gross pay is $1450.80. Gross pay is the total before tax and other deductions.
3.Commission, piecework and royalties
- Commission is a percentage of the value of sales. With a sliding scale, the percentage changes as sales increase. Some jobs pay a retainer (a fixed amount) plus commission.
- Piecework pays a fixed amount per item made or task done.
- Royalties are a percentage of the sales of something a person created, such as a book or song.
- A bonus is a one-off extra payment; an allowance is extra pay for special conditions, such as working at heights or using your own tools.
- A sole trader runs their own business. Their income is the money received minus the business costs.
Worked example: sliding scale commission
A real estate assistant is paid 5% commission on the first $20 000 of sales in a month and 3% on sales above $20 000. Find the commission on sales of $47 500.
Split the sales into the two bands. The amount above $20 000 is .
The commission is $1825. The common wrong answer is , which applies the second rate to all the sales.
Leave loading
Many workers get 4 weeks of paid annual leave, plus leave loading, usually 17.5% of their normal pay for those weeks. For a worker on $1250 per week, the loading on 4 weeks is dollars, so the total holiday pay is $5875. Leave loading is calculated on normal pay only, not overtime.
4.Taxation
Taxable income
Your taxable income is your gross income for the year minus allowable deductions: work-related costs such as uniforms, tools, union fees, work travel and donations to charities.
Taxable income is usually rounded down to the whole dollar.
Income tax from a tax table
Australia uses progressive tax: higher parts of income are taxed at higher rates. The HSC gives you a tax table. The 2024–25 resident rates were:
| Taxable income | Tax on this income |
|---|---|
| 0 to $18 200 | Nil |
| $18 201 to $45 000 | 16c for each $1 over $18 200 |
| $45 001 to $135 000 | $4288 plus 30c for each $1 over $45 000 |
| $135 001 to $190 000 | $31 288 plus 37c for each $1 over $135 000 |
| $190 001 and over | $51 638 plus 45c for each $1 over $190 000 |
Rates change from year to year, so always use the table printed in the question.
On top of income tax, most taxpayers pay the Medicare levy, 2% of taxable income, which helps fund public health care.
PAYG and tax returns
Under the Pay As You Go (PAYG) system, the employer withholds tax from each pay, using weekly, fortnightly or monthly tax tables, and sends it to the Australian Taxation Office. After 30 June, a worker lodges a tax return. If more tax was withheld than is owed, they get a refund; if less, they have a tax debt to pay.
Worked example: tax payable and refund
Omar earned a gross income of $78 450 and has allowable deductions of $2130. His employer withheld $15 600 in PAYG tax during the year. Using the table above, find his tax payable including the Medicare levy, and whether he gets a refund.
Step 1: taxable income.
Step 2: income tax. $76 320 is in the $45 001 to $135 000 bracket.
Step 3: Medicare levy and total.
Step 4: compare with the tax withheld.
More tax was withheld than he owes, so Omar gets a refund of $389.60.
Net pay
Net pay (take-home pay) is gross pay minus tax withheld and any other deductions, such as extra superannuation, union fees or health insurance taken from the pay. Read pay slips carefully: the question may list several deductions.
Spreadsheets
A spreadsheet can model pay with one formula per row. For example, with hours in B2 and rate in C2, =IF(B2>38,38*C2+(B2-38)*1.5*C2,B2*C2) works out weekly pay with time-and-a-half overtime. You should be able to read a spreadsheet formula and say what it calculates.
5.Common mistakes
- Dividing an annual salary by 48 or using 4 weeks in a month.
- Paying overtime at 1.5 times the rate for all hours worked, not just the extra hours.
- Applying the top commission or tax rate to the whole amount instead of only the part in that band.
- Forgetting the base amount (for example $4288) in the tax bracket formula, or subtracting the wrong threshold.
- Calculating the Medicare levy on gross income instead of taxable income.
- Mixing up refund and debt. Refund means too much was withheld.
6.Exam tips
- Lay out multi-step questions in labelled steps: taxable income, tax, Medicare levy, then the comparison. Marks are given for each step, so a slip early on still earns later marks if your method is right.
- Calculate means show the working with the numbers. Write money answers to the nearest cent unless told otherwise.
- With a tax table, write down which bracket you are using and the amount over the threshold before you multiply.
- End with a sentence, for example "Omar receives a refund of $389.60".
7.Links to other topics
- Formulas and equations: pay and tax calculations are substitution into formulas.
- Managing money: a budget starts from net income.
- Investment and loans (Year 12): interest earned and loan repayments use the same percentage skills.
- Data analysis: comparing incomes uses measures of centre such as the median.
Test yourself
Practise 9 exam-style questions on Earning Money, each with instant marking and a worked solution.
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