Types of income: wage, salary, commission, tips and self-employment

0:00Income is money you receive. These five workers are each paid in a different way.

0:06A wage is pay for each hour worked, here 18 dollars an hour.

0:12A salary is a fixed amount for a year, paid in equal parts, here 52,000 dollars a year.

0:19Commission is usually a percent of sales: 5 percent of 20,000 dollars in sales is 1000 dollars.

0:27Tips are extra money from customers, often on top of an hourly wage.

0:32A self-employed person charges a fee for each job, here 80 dollars, and keeps their own records.

0:40How steady is each one? A salary pays the same amount every payday. A wage changes with the hours worked.

0:49Commission changes with sales, tips with customers, and self-employment with the number of jobs.

0:56So which pays more: 18 dollars an hour or 52,000 dollars a year?

1:02A common mistake is comparing 18 with 52,000. An hour and a year are different time periods.

1:11Turn the wage into a year. At 40 hours a week, 18 times 40 is 720 dollars a week.

1:18With 52 weeks in a year, 720 times 52 is 37,440 dollars a year.

1:27Now both are per year: 52,000 minus 37,440 is 14,560 dollars more for the salary.

1:38Check it per hour: 52,000 divided by 52, then by 40, is 25 dollars an hour, more than 18.

1:48These are all gross pay: pay before deductions such as income tax.

1:54Recap: compare pay over the same time period, year with year or hour with hour.