MHB Percentage in Commission Calculation Issue

[mitsu]

I'm trying to figure out a formula for a pay plan, I think we are calculating things incorrectly but I can't seem to work out the right formula..

The idea is that an employee is paid a percentage of the business's net income, the owner believes that percentage should be after their pay is calculated, the theory being the managers pay is an expense, so the true net income of the business is net of his pay and that's the number pay should be calculated from...

they are proposing to do it like this...

net income - 100,000

pay plan - 25 percent

so they go 100,000 x 75 percent = 75,000

then pay the 25 percent from that number which is 18750.

Doesn't seem right to me since 75,000+18,750 = 93750

leaving an amount of 6,250 that the employee should be entitled to a portion of...

This seems wrong to me as the true net income is not 75,000, it is 81,750 with that formula...

Would the formula be the same no matter what percentage was being used ? (ie whether the employee pay plan was being calculated at 10 or 15 or 20 % )

Hoping someone can help me figure out (what I feel like) should be a simple formula...

 

[Wilmer]

Looks to me that something like this is going on:

Income before commissions : A

Commissions : B

Net income: A-B

The weird part: B is calculated using a certain percentage
of (A-B), not on A alone.

If you want a reasonable answer, post your problem
reasonably clearly...guessing is not the way...

 

[Wilmer]

Here's an example of what I mean:

Gross income            96,800

Tax#1: 15% of Gross    -14,520 : 96800 * .15

Tax#2: 10% of Net      - 7,480 : 74800 * .10
                       =======
Net income              74,800

Calculation of Tax#2 a bit tricky, since Net income not known.
This'll work:

g = 96800

x = g * (1 - .15) = 96800 * .85 = 82280

n = x / (1 + .10) = 82280 / 1.10 = 74800

Tax#2 = x - n = 82280 - 74800 = 7480