12. Understands and applies payroll theories and procedures by being able to: a. Explain the importance of accurate payroll records b. Calculate gross earnings using different methods c. Explain and calculate different types of deductions from gross earnings d. Prepare a payroll register e. Prepare an employee’s earnings record f. Define the accounting terms used in chapter
List of the employees & payments due to each employee for specific pay period Pay period: amount of time over which an employee is paid Weekly Every two weeks (bi-weekly) Twice a month (semimonthly) Monthly
Person responsible for preparing payroll Makes sure employees paid on time Makes sure each employee is paid correct amount Completes payroll records Submits payroll reports Pays payroll taxes
Total amount of money an employee earns in a pay period Calculating gross earnings depends on the bases on which employee is paid: Salary Hourly wage Commission Salary plus commission or bonus Overtime pay
Fixed amount of money paid to an employee for each pay period. Earns certain amount of money regardless of the hours of service to company Example: Salaried person earns $60,000 a year. $60,000 / 12 = $5,000 a month or $5,000/4 = $1,250 every week before taxes.
Amount of money paid to an employee at a specified rate per hour worked Multiple the number of hours work by the hourly wage Example:$7.25 x 36 hours worked = $261.00 before taxes
On time cards, companies divide an hour into four 15-minute quarters in measuring employee work time Quarter Hour Example On the hour 2:00 p.m. 15 minutes after the hour 2:15 p.m. 30 minutes after the hour 2:30 p.m. 45 minutes after the hour 2:45 p.m.
On time cards, companies divide an hour into four 15-minute quarters in measuring employee work time Nearest Quarter Actual Time Recorded Hour 7:58 a.m. 8:00 a.m. 12:25 p.m. 12:30 p.m. 1:32 p.m. 1:30 p.m. 4:18 p.m. 4:15 p.m.
Day: Mon., Tues., etc. In: Time checked in Out: Time checked out for lunch In: Time checked In Out: Time checked out for the day Total: number of hours worked on that day Total Hours: number of hours worked for week
Hours: Place # of hours worked for pay period Rate: Amount paid per hour Amount: Multiple Hours x Rate = Amount Overtime: amount worked over 40 hours for that pay period.
Overtime: amount that exceeds 40 hours in a week (80 hours if bi-weekly) Overtime rate: Set by the Fair Labor Standards Act of 1938—must pay 1 ½ (1.5) times the employees regular hourly pay rateExample: Employee is paid $7.25 an hour.Overtime Rate: $7.25 x 1.5 = $10.88Hours worked: 44—of the 44, 4 are overtime.
40 x $ 7.25 = $290.00 4 x $10.88= $ 43.5244 hours $333.52
Amount paid to an employee based on a percentage of the employee’s sales Sales employees often paid on commission Example: Total sales: $8,254 Commission: 3% $8,254 x 3% (.03) = $412.70
Some sales people earn a base salary + commission Paid salary: $200 a week 3% of sales: Sales: $4,810$4,810 x 3% (.03) = $144.30 + $200 = $344.30 Go to page 292 in book; problem 12-1
Amount deducted from check, either required by law (taxes) or requested by employee Results in “net pay” being less than gross earnings
1. Federal Income Tax2. Social Security Tax (FICA) Social security tax Medicare tax3. State and Local Income Taxes
1. Paid to federal government based on annual income2. Employers are required to withhold a certain amount of money from each payroll check3. Employer sends money paid by employees to federal government4. Employer acts as collection agency for federal government
1. Amount owed to government based on estimated of amount of income tax employee will actually owe2. Exact amount is determined when employee prepares an income tax return3. Overpay, receive a refund4. Underpay, amount is due when tax return is filed
1. Amount withheld depends on 3 factors: Employee’s marital status Number of allowances claimed by employee Employee’s gross earnings2. First two are found on the W-4 statement3. Form W-4 filled out by each employee when starting a job Example of W-4 on next page
1. Most employers use federal tax tables to determine federal income tax2. See page 295 in book
1. Present social security system established by Federal Insurance Contribution Act (FICA) in 1935 by Congress2. Provide income to certain individuals: Old-age & disability insurance to retired & disabled persons & their dependents Survivors benefits to spouse & dependents of deceased worker Medicare program provides health insurance benefits for elderly
1. SS tax is an exact tax2. Rates are set by Congress3. Two types of SS tax: Social security tax Medicare tax4. Tax rates are as follows: Social Security: 6.20% Medicare Tax: 1.45% Total FICA tax 7.65%
1. Social Security: maximum amount to be taxed today is: $106,800 (the book will use $68,400)2. Medicare: has no maximum
1. Most state & cities tax earnings of people who live in their state or city2. Usually set as % of gross earnings
1. Other deductions by employees are voluntary, including: Union dues Health insurance Life insurance Pension & other retirement contributions –401(k) & 403(b) Credit union deposits and payments U.S. savings bonds Charitable contributions Go to page 298 in book & due Problem 12-2
1. Payroll Register: form that summarizes information about employees’ earnings for each pay period2. Includes: Employees’ I.D. # Name Marital status Number of allowances claimed
1. Payroll check is written for each employee for “Net pay” amount2. Company has only few employees, checks are written from regular checking account3. Companies with many employees, usually use a separate checking account
1. Separate checking account used, need to transfer funds from regular checking into payroll checking account2. The amount of transfer is for the “total net pay” for all employees3. Then, individual checks are written to each employee from the payroll checking account
1. If company does direct deposit, net pay is deposited in the employee’s personal bank account by employee2. No check is written
1. Record contains all of payroll information for each employee, so that employee and employer knows how much has been paid and deducted for each pay period