What are wages and how are they calculated?

Two people work at a car wash on the edge of town. Qobil washes the cars, and Nafosat sits at the till and takes the money. At the end of the month both of them got their wages, but their amounts were calculated in completely different ways.

What are wages?

Wages are money a person gets in return for working for someone else. They are often paid once a month, so people also call them a monthly salary.

There are two sides here:

• the employee: the person who does the work (Qobil and Nafosat);
• the employer: the side that orders the work and pays for it (here, the owner of the car wash).

How are wages calculated?

There are two most common ways.

By the amount of work done. A set fee is paid for each piece of work done. The more a person works, the more they get.

By the time worked. There is a set amount per month. If the employee works on all working days, they get it in full. For days off taken at their own expense, they get no pay. There are also cases when pay is kept for days not worked; we will get to know them in later lessons.

For example (the figures are hypothetical):

Qobil's pay is different every month: if many cars come, it goes up; if few come, it goes down. Nafosat's pay is steady; it went down only because of the days she did not work.

Does the whole calculated amount reach your hand?

Usually not. A tax set by law is withheld from wages and paid to the state. In some cases there may be other deductions too. So the money the employee gets in hand is a little less than the calculated amount.

We will talk about the name of this tax and how it is calculated in later lessons. For now, tell two phrases apart: calculated wages and wages received in hand.

What are wages for the employer?

Remember the fifth lesson: the baker wrote the pay of his apprentice on his list of expenses. It is just the same here.

For Qobil, wages are income: the money comes into his purse. For the owner of the car wash they are an expense: the money goes out from him. This month his expense on wages is 3 900 000 + 2 640 000 = 6 540 000 soum.

This is not yet all the cost of the employees. Besides wages, the employer also pays other compulsory payments set by law at his own expense. So the employees cost him more than the calculated wages. We will get to know these payments later too.

The same money is income for one person and an expense for another. This is a very important idea for understanding accounting.

In the next lesson

In the eleventh Basics lesson we will get to know the person who gives work and his business: the entrepreneur and the company.