Different Types of Income
There are two types of income namely active and passive income. Active income is where you do work or provide services and you are paid. A passive income is not earned directly, you have to complete a task then receive payment later.
Salary
This is the type of income that you earn from a job. It can be either paid weekly or monthly depending on the contractual agreement. The amount is usually regular throughout the year.
Basic salary is the amount an employee earns before deductions, taxes, and other additions. Gross salary includes the basic salary plus all additional earnings such as bonuses and commissions.
Wages
You earn wages from a job that is paid at an hourly rate. You earn more money depending on the number of hours you work. To get the hourly wages you multiply the hourly rate by the number of hours an employee has worked per day.
Overtime pay is 1.5 times the employee’s regular wages. The overtime is paid for every hour an employee works over 40 during the week. It is important to note that not all employers offer overtime wages although it is required by law.
Commission
The commission is the common form of payment for sales roles. It allows you to earn a percentage after completing a task. You earn a certain amount after each sale depending on the employment contract. Commission focuses on the results rather than time/hours worked.
For example, an employee who sells a car worth $9000 and receives a commission of 9% of the sale. The employee will earn a commission of $810 for selling the car. The income might not be regular as it only happens when a task is completed. A commission-based employee is entitled to receive overtime payment by law upon reaching certain conditions.
Interest
Interest income is earned after depositing money in your bank. The interest is different depending on the type of account. Buying government bonds as an investment will also earn you interest.
The bank calculates the interest annually and the amount is taxable. Interest income is also earned by shylock after a loan is paid.
Royalty
This is a type of passive income that is earned by creating something unique and charging people. A good example is musicians and YouTubers.
When musicians are signed by a record label, the company produces the records, pays the musician, and does the marketing. Also happens when people watch, download or stream music, the payment that musicians receive is royalty.