Chapter 12 – Preparing Payroll Records

Chapter Objectives

• Complete a payroll time card• Calculate payroll taxes• Complete a payroll register and • an employee earning record• Prepare payroll checks

Employee earnings record: a business form used to record details affecting payments made to an employee

Medicare tax: a federal tax paid for hospital insurance

Net pay: the total earnings paid to an employee after payroll taxes and other deductions

Pay period: the period covered by a salary payment

Payroll: the total amount earned by all employees for a pay period

Payroll register: a business form used to record payroll information

Payroll taxes: taxes based on the payroll of a business

Salary: the money paid for employee services

Social security tax: a federal tax paid for old-age, survivors, and disability insurance

Tax base: the maximum amount of earnings on which a tax is calculated

Total earnings: the total pay due for a pay period before deductions

Withholding allowance: a deduction from total earnings for each person legally supported by a taxpayer, including the employee

Essential Chapter Terms

Salary

• Salary- The money an employee is paid for their services• Usually used in conjunction with weekly,

biweekly, semimonthly, or monthly earnings. • Can be used interchangeably with “wages”

• Pay Period- The period covered by the salary payment.

• Payroll- To the business this is the combined amount of the earnings between all employees combined.

Sample Employee Time Card

Alaska +8Hrs= 1.5 timeCalifornia +8Hrs= 1.5 time

+12Hrs= 2 TimeColorado +12Hrs=Premium Pay

Total Earnings- The total amount paid to the employee during the pay period. This is a “gross” amount (as opposed to NET) which means that it is before any deductions or taxes are taken from the paycheck.

$alary

Social Security TaxIncome Tax

Medicare Tax

Net

So why is it so important to give an accurate amount of allowances?

• If you claim too few allowances it will be nice when you get your return because you will probably get a refund. BUT….There is an opportunity cost to this money. You are giving the government a 0% interest loan on this money.

• If you claim too few allowances you will probably have to pay when you file. Not only this, nut if the difference is high enough you can get charged interest for the money owed.

IRS Form W-4

So I make $10 and hour and worked 40 hours. My check should be $400 right??

• Federal Income Tax• See tables-Need 3 bits of info

• Gross income Remember the net example• Marital status • Number of allowances claimed

• State Income Tax• 3% to 5% effective 1/1/11• Drops to 4% on 1/1/2015…..

Social Security Tax Base

• Contribution and benefit bases, 1937-2011• Year Amount

1937-50 $3,0001951-54 3,6001955-58 4,2001959-65 4,8001966-67 6,6001968-71 7,8001972 9,0001973 10,8001974 13,2001975 14,1001976 15,3001977 16,5001978 17,7001979 22,9001980 25,900

1981 29,7001982 32,4001983 35,7001984 37,8001985 39,6001986 42,0001987 43,8001988 45,0001989 48,0001990 51,3001991 53,4001992 55,5001993 57,6001994 60,6001995 61,2001996 62,700

1997 65,4001998 68,4001999 72,6002000 76,2002001 80,4002002 84,9002003 87,0002004 87,9002005 90,0002006 $94,2002007 97,5002008 102,0002009 106,8002010 106,8002011 106,800

So I make $10 and hour and worked 40 hours. My check should be $400 right?? Continued…

• FICA (Federal Insurance Contributions Act)• Social Security tax

• 6.2% of gross earnings up to tax base• Medicare tax

• 1.45% of gross earnings (no tax break limit)• FICA is paid by both the employee and the

employer

Payroll Register• Separate payroll register for each pay period

Accumulated Earnings is the sum of the lime above it, plus the Total Earnings from the same line as the blank you are filling in.

When calculating Accumulated Earnings, you use Total Earnings. You do N O T, N O T, N O T, N O T, N O T, N O T, N O T use Net Pay.We are expressing the wages that have been EARNED, not what was deposited by each employee

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