CHAPTER 13 Preparing Payroll Records. OBJECTIVES: n Define accounting terms related to payroll records n Identify accounting practices related to payroll.
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OBJECTIVES: OBJECTIVES:
Define accounting terms related to payroll records
Identify accounting practices related to payroll records
Complete a payroll time card Calculate payroll taxes Complete payroll register and an employee
earnings record Prepare payroll checks
Ways Employees Are PaidWays Employees Are Paid
Salary - $ per week, month, or year Wages - $ per hour Pay Period - How often an employee is paid - usually
bi-weekly, can be weekly, bi-monthly, or monthly Payroll - The total amount earned by all employees for
a pay period Overtime Pay: increased pay for extra hours worked,
either 8+ hours per day or 40+ hours per week• Usually not eligible if salaried
Payroll time cards: – Record the time employees work – Time is recorded to nearest quarter hour
CH 13-1: Preparing Payroll Time CardsCH 13-1: Preparing Payroll Time Cards
Must keep special payroll records to support the recording of payroll transactions in a journal: 1. Employee earnings record – individual2. Payroll register – all employees
Records are used:– To inform employees of their annual
earnings– For business to prepare payroll records for
government
CALCULATING EMPLOYEE HOURS WORKEDCALCULATING EMPLOYEE HOURS WORKED
1. Calculate regular hours.
2. Calculate overtime hours.
3. Add Hours Reg and Hours OT columns and enter totals.
4. Add Hours column.
3
4
2
1
Lesson 13-1, page 313Lesson 13-1, page 313
**Round times to nearest quarter hour
Gross Pay (total before deductions)Gross Pay (total before deductions) = Hours X Rate = Hours X Rate
Employee A worked 40 hours and was paid $8.00 an hour.
40 x 8 = $320.00 Gross Pay Employee B worked 40 regular hours and 2
overtime hours at $8.00 an hour.
40 x 8 = $320.00 Regular
2 x 12 = 24.00 Overtime (OT = $8 x 1.5 = $12)
$344.00 Gross Pay
Net Pay = Gross Pay – Deductions
CALCULATING EMPLOYEE TOTAL EARNINGSCALCULATING EMPLOYEE TOTAL EARNINGS
Lesson 13-1, page 314Lesson 13-1, page 3145
1 2
43
3. Enter the rate for overtime.
1. Enter the rate for regular time.
4. Calculate overtime earnings.
OT hours * OT Rate
2. Calculate regular earnings.
Reg hours * Reg rate
5. Calculate Total Earnings.
***AKA***
Gross Pay or Gross Earnings
TTERMS REVIEWERMS REVIEWsalary
pay period
payroll
total earnings
TO DO:
Work Together, pg 315
On your own, pg 315
CHAPTER 13-2: Determining Payroll Tax WithholdingsCHAPTER 13-2: Determining Payroll Tax Withholdings
Payroll taxes: taxes based on payroll of the business Business is required by law to withhold certain
payroll taxes from employee salaries
All are based on employee total earnings must keep accurate and detailed records
– Errors incorrect tax payments state and federal government penalties
Liability for the employer until paid to government
Employee Income Tax:Employee Income Tax:
Must withhold federal income taxes from total earnings
Forwarded periodically to federal government Many states also require state income taxes
withheld
Employer must keep payroll records for:– Federal Government– State Government– County Government– Local Government
Form W-4: Employee’s Withholding Allowance CertificateForm W-4: Employee’s Withholding Allowance Certificate
Withholding allowance: deduction from total earnings for each person legally supported by tax payer, including employee
Must be filled out by every employee kept current Determines amount employer withholds from the
employee’s pay check.
Five Filing Statuses – to determine amount of tax Five Filing Statuses – to determine amount of tax withheldwithheld
Single Married Married Filing Separately Widow/Widower Head of Household
ITEM 7 on W-4ITEM 7 on W-4 Claiming Exemption from Withholding for certain low-
income, part-time employees Employer would not withhold income tax because you
would owe none at the end of the year. Must STILL fill out W-4 TO qualify:
1. Cannot earn over $7002. Cannot have earned any interest or dividends3. Cannot be claimed by another person4. International student / foreign employee from temporary visa
EMPLOYEE’S WITHHOLDING ALLOWANCE EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATECERTIFICATE
5
1 34
2
3. Marital Status
1. Name and Address 4. Withholding Allowances
2. Social Security Number 5. Signature and Date
EMPLOYEE’S INCOME TAX WITHHOLDING—MARRIED EMPLOYEE’S INCOME TAX WITHHOLDING—MARRIED PERSONSPERSONS
Lesson 13-2, page 319Lesson 13-2, page 319
63At least But Less than
1,120 1,140
Selby:
Married
$1137.00
4
Payroll Taxes Paid by EmployeePayroll Taxes Paid by Employee
FICA (Federal Insurance Contributions Act)– Social Security 6.5% (old-age, survivors, disability)– Medicare 1.5% (hospital insurance)– Total 8% (paid by both employee AND employer)
Tax Base for 1997 is $65,400 (used for book)2007 - $97,5002008 - $102,000
Medicare – proportional at all levels (no tax base)
Federal Income Tax – Rates are from 15% to 38.6 %– Amount Paid depends on:
• Exemptions claimed• Filing Status • Gross Pay
State Income Tax - PA 2.8% Local Income Tax – Upper Saucon 1% - Lower Saucon 2%
Taxes Paid by EmployerTaxes Paid by Employer
Social Security and Medicare - Same rate as employee
Federal Unemployment – 0.8% (first $7000)
State Unemployment – 5.4% (first $7000)
– (more details later)
EMPLOYEE SOCIAL SECURITY AND MEDICARE TAXEMPLOYEE SOCIAL SECURITY AND MEDICARE TAX
Total Social Security Social SecurityEarnings Tax Rate = Tax Deduction
Total Medicare MedicareEarnings Tax Rate = Tax Deduction
Calculate Social Security Tax Deduction
Calculate Medicare Tax Deduction
$1,137.00 6.5% = $73.91
$1,137.00 1.5% = $17.06
TTERMS REVIEWERMS REVIEWpayroll taxes
withholding allowance
social security tax
Medicare tax
tax base
***************************
TO DO:
Work Together, 321
On your own, 321
Application Problems 13-1, 13-2, pg 331
Chapter 13-3: Preparing Payroll RecordsChapter 13-3: Preparing Payroll Records
Payroll Register: Summarizes Gross & Net Pay and
deductions for all employees for 1 payroll period. Remember: Partners are not employees and are
not paid salaries – how are they paid????
*****Payroll is an expense of the business*****
PAYROLL REGISTERPAYROLL REGISTER
5
1
3
4
2
3. Employee Personal Data
1. Pay Period Date
4. Earnings
2. Payment Date
5. Federal Income Tax
106 8 97
6. Social Security Tax
11 13
12
10. Total Deductions
8. Health Insurance
11. Net Pay
9. Other Deductions
12. Total, Prove, and Rule
7. Medicare Tax
13. Check Number
Voluntary/Other Deductions – Column 8Voluntary/Other Deductions – Column 8
Union dues - U Savings /Retirement – S or R Insurance – Life - L United Way - UW US Savings Bonds - B Company Stock options Health, Travel fund, etc. Anything employer and employee agree upon.
Employee Earnings RecordEmployee Earnings Record
Business form used to record details affecting payments made to each employee
New record prepared each quarter for each employee
Info needed to prepare it is taken from the payroll register
Must send quarterly reports to government agencies showing: – Employee taxable earnings– Taxes withheld
EMPLOYEE EARNINGS RECORDSEMPLOYEE EARNINGS RECORDS
Lesson 13-3, page 324Lesson 13-3, page 324
1
3
4
2
3. Beginning Accumulated Earnings
1. Last day of Quarter
4. Pay Period
5. Earnings, Deductions, Net Pay
6
7
6. Updated Accumulated Earnings = Acc. Earnings + TOTAL earnings
7. Total and Prove
2. Employee Personal Data
5
TTERMS REVIEWERMS REVIEWpayroll register
net pay
employee earnings record
TO DO:
Work Together, pg 326
On your own, pg 326
Lesson 13-3, page 326Lesson 13-3, page 326
Chapter 13-4: Preparing Payroll ChecksChapter 13-4: Preparing Payroll Checks
A separate checking account is set up for payroll.
One check is made out for the TOTAL net wages and deposited into the payroll checking account.
Then individual checks are made to each employee from this account.
Helps to protect and control payroll payments
INFO is taken from payroll register
PAYROLL BANK ACCOUNTPAYROLL BANK ACCOUNT
1
1. Prepare the check stub.
2
2. Prepare the check.
Lesson 13-4, page 327Lesson 13-4, page 327
Voucher checkVoucher check
This is a check with a description of the attached check.
An employer must give an employee a voucher check for his wages.– It must show gross pay (regular and overtime),
deductions, and net pay. Employee's Earnings Record:
– This is a record of one employee’s pay for the entire quarter.
EMPLOYEE’S PAYROLL CHECKEMPLOYEE’S PAYROLL CHECK
1
1. Enter on check stub information from payroll register.
2
2. Prepare employee’s payroll check for net amount of earnings.
Lesson 13-4, page 328Lesson 13-4, page 328
Automatic Check DepositAutomatic Check Deposit
The employee authorizes the employer to deposit his payroll check into a particular checking or savings account.
EFT: Electronic Fund Transfer
A check is never made out; it is a computer transaction.
The employee receives a check stub with payroll information.
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