Study

Paycheck Fact or Fiction?

  •   0%
  •  0     0     0

  • If an employee earns $20 per hour and works 40 hours, the net pay is $800. Fact or fiction?
    Fiction: The gross pay, not net pay, is $800. Net pay equals gross pay minus deductions and taxes.
  • The median (middlemost) weekly earnings of full-time U.S. workers is about $1,120. Fact or fiction?
    Fact
  • It is important that workers review their pay stubs to check for errors. Fact or fiction?
    Fact
  • All U.S. employers must issue paychecks to workers each week. Fact or fiction?
    Fiction: The frequency of paychecks varies from company to company but must comply with state laws.
  • Federal income tax withholdings can reduce a person’s net pay. Fact or fiction?
    Fact
  • Only workers over the age of 65 must have Medicare taxes withheld from paychecks. Fact or fiction?
    Fiction: Although Medicare provides health care for those over age 65, all workers must pay the tax.
  • Workers should carefully consider how they spend and save their paycheck. Fact or fiction?
    Fact
  • A nonexempt worker earns an annual salary and does not receive overtime pay. Fact or fiction?
    Fiction: An exempt worker, not a nonexempt worker, earns an annual salary but is not required toreceive overtime pay.
  • All U.S. states withhold state income tax from workers’ paychecks. Fact or fiction?
    Fiction: Most, but not all U.S. states, have a state income tax.
  • From each paycheck, 6.2% of a worker’s gross pay is withheld for Social Security (retirement and disability benefits) and 1.45% is withheld for Medicare (health care for those over 65). Fact or fiction?
    Fact
  • Another term for take-home pay is gross pay. Fact or fiction?
    Fiction: Another term for take-home pay is net pay. Net pay equals gross pay minus deductions andtaxes.
  • Approximately 141,000 U.S. workers earn exactly the federal minimum hourly wage. Fact or fiction?
    Fact: According to the Bureau of Labor Statistics, 141,000 U.S. workers earned exactly the current federal minimum hourly wage (2022 data).
  • A worker submits a W-4 form to adjust the amount of federal tax withheld from the paycheck. This is one way to help ensure the correct amount of federal tax is paid. Fact or fiction?
    Fact
  • If a worker quits a job before payday, the worker does not receive a final paycheck. Fact or fiction?
    Fiction: Laws require that workers receive a paycheck for all work completed prior to quitting or beingfired.
  • A direct deposit occurs when an employer electronically transfers money into the worker’s designated bank account on payday; the worker does not receive a paper paycheck. Fact or fiction?
    Fact
  • The U.S. Department of Labor enforces minimum wage, overtime, and other job laws. Fact or fiction?
    Fact
  • Minimum wage earners tend to be younger in age and work part-time hours. Fact or fiction?
    Fact
  • A pay stub is a document that many employers provide to workers each pay period. It typically lists the worker’s current and year-to-date gross pay, taxes, deductions, net pay, and hours. Fact or fiction?
    Fact
  • The size of one’s paycheck is a good way to judge a person’s character and abilities. Fact or fiction?
    Fiction
  • A company’s pay period determines how often a worker is paid. Fact or fiction?
    Fact
  • A worker earned $5,000 in base pay and $1,000 in overtime last month. The employer withholds $2,000 (for taxes, health insurance, and a 401(k) plan). The net monthly pay is $4,000. Fact or fiction?
    Fact: Net pay is gross pay minus withholdings. In this case, gross pay is $6,000 and withholdings are $2,000, so net pay = $6,000 − $2,000 = $4,000.
  • A worker’s net pay is smaller than gross pay. Fact or fiction?
    Fact: Net pay is gross pay minus deductions and taxes; therefore, net pay is smaller than gross pay.
  • All workers pay the same percentage of federal income tax. Fact or fiction?
    Fiction Federal income tax rates (percentages) increase as income increases. Lower-earning workers have a lower tax rate than higher-earning workers .
  • Base pay is a worker’s normal hourly or annual wage plus overtime pay and bonuses. Fact or fiction?
    Fiction: Base pay does not include extra compensation such as bonuses, commissions, or overtime pay.
  • Health insurance premiums, union dues, and retirement plans like 401(k)s are all types of paycheck deductions that can decrease a worker’s net pay. Fact or fiction?
    Fact
  • The pay for an hourly employee is calculated the same way that the pay for a salaried employee is calculated. Fact or fiction?
    Fiction: An hourly employee earns an hourly rate (e.g., $20 per hour)while a salaried employee earns an annual salary (e.g., $50,000 per year)
  • If an employer withholds taxes from paychecks, those workers never have to file an annual federal income tax return (report). Fact or fiction?
  • Overtime is generally considered hours worked over 40 in a week. Fact or fiction?
    Fact
  • If two employees earn the same gross pay, then they must receive the same net pay. Fact or fiction?
    Fiction: Depending on their specific paycheck withholdings, their net pay may differ even if their grosspay is the same.
  • If a worker’s pay stub shows a line item for ****, it relates to Social Security and Medicare withholdings. Fact or fiction?
    Fact: FICA is the acronym for Federal Insurance Contributions Act, which addresses payroll contributionsfor Social Security and Medicare programs.
  • If state and federal minimum wages differ, the worker is paid the lower of the two. Fact or fiction?
    Fiction: The worker is entitled to the higher of the state or federal minimum wage.
  • If a worker earns a $500 sales bonus, the net pay will increase by $500. Fact or fiction?
  • If a worker’s base pay is $36,000 per year and paychecks are issued on a monthly basis, the gross monthly pay is $3,000. Fact or fiction?
    Fact
  • If a worker chooses to participate in a company-sponsored health insurance plan, the premium (payment) will likely be deducted from the worker’s paycheck, reducing the net pay. Fact or fiction?
    Fact
  • The most common pay period of private (nongovernment) U.S. businesses is monthly. Fact or fiction?
    Fiction: The most common pay period for private U.S. businesses is biweekly (every 2 weeks), followedby weekly.
  • The phrase living paycheck to paycheck means a person spends nearly all earnings on expenses and has little savings in the event of a financial emergency. Fact or fiction?
    Fact
  • Wage theft occurs when a worker steals money from an employer. Fact or fiction?
    Fiction: Wage theft is an illegal practice that occurs when an employer does not pay a worker rightfully owed wages.
  • If a company pays “time and a half” for overtime and a worker’s base pay is $20 per hour, then the worker will earn $20.50 for each hour of overtime. Fact or fiction?
    Fiction: The worker earns time ($20) + one half ($20/2 = $10), which equals $30 per hour in this case.
  • A company may use an electronic or paper timesheet to record workers’ hours. Fact or fiction?
    Fact
  • If workers do not have a bank account, they can cash a paycheck at a check-cashing service or at some banks, but they will likely be charged a fee for doing so. Fact or fiction?
    Fact