business accounting chapter 12. importance of payroll records required by law – keep accurate...
TRANSCRIPT
Business Accounting
Chapter 12
Importance of Payroll Records
• Required by law –keep accurate payroll records –report employee earnings–pay payroll taxes
• Keep employees happy• Huge expense
The Payroll System
• Calculate Earnings • Calculate Deductions • Prepare Payroll Checks • Report Payroll Info to Government • Update the Payroll and Accounting Records
Payroll:
• list of employees and payments due to each employee for specific pay period
Pay Period:
• amount of time over which employee is paid– weekly– biweekly (every other Friday)– semimonthly (the 1st and the 15th) – monthly
Payroll Clerk:
• prepares payroll
Calculating Gross Earnings
• Gross Earnings: – amount of money earned for working
Wage:
• usually for manual or unskilled labor• regular hours worked * hourly pay rate
Time Card
• records arrival and departure times– written in manually or punched in on time clock– usually rounded to the nearest quarter hour
Electronic Badge Reader
• used for greater accuracy to the minute– id card is swiped through an electronic reader– recorded info is uploaded to payroll computers
Salary:
• usually for managers and supervisors• set amount of annual pay – (not based on hours worked)
Commission:
• paid a percentage of sales
Salary Plus:
• base salary plus commission on sales
Bonus:
• special pay for meeting certain performance standards
Overtime:
• (hrs worked > 40 per week) * hourly rate * 1.5– Fair Labor Standards Act of 1938– some employees are exempt from overtime laws
Payroll Deductions
• amounts subtracted (withheld)from gross earnings
Deductions Required by Law:
• Federal Income Tax Withholding– based on estimate of actual income tax
to be owed at end of year
• employee prepares Form W-4 for employer specifying:– marital status– allowances• usually one allowance for you and each dependent• more allowances equals less withholding• must withhold at least 90% of total tax liability or pay
penalty
Calculating federal Withholding
• employer uses a tax table from IRS to determine how much to withhold
• employer withholds money and forwards to the government for the employee– acts as a collection agent
• some employees are exempt from withholding if all the following apply:– no tax liability last year– expects no liability this year– if income more than $700 and includes nonwage
income, and not claimed as dependent on someone else’s tax return
FICA
• Federal Insurance Contribution Act of 1935• Social Security provides income to retired and
disabled persons• Medicare provides health insurance for the
elderly
• Tax rates are set by Congress (can change at any time)– Social Security 6.2% • on income up to $110,000 in 2010
up to $ 94,200 in 2005
– Medicare 1.45%– State and Local Taxes• some states use tables and some use rates
– Illinois uses a rate of 3%• some states do not charge income tax
Voluntary Deductions
• amounts that the employee asks the employer to withhold and forward for the employee
union dues
• easier for the union – one payment from employer,
not payments from thousands of employees
insurance premiums
• employees contribute a part or all of the premium – health– life– disability
pensions
• if a company still has an open pension plan– employees contribute percentage • if they want to participate
401(k) or 403(b)
• named after an IRS code section• one of the greatest inventions of all time– invest pretax dollars – grow tax deferred– possibly get company match• free money
direct deposits
– net pay is electronically deposited into bank account on pay day
charitable contributions
• automatic way to give back to community
GROSS EARNINGS – DEDUCTIONS
======================= NET PAY (TAKE-HOME PAY)
Payroll Records
• Payroll Register• Employee’s Earnings Record
Payroll Register
• summarizes information – all the employees’ earnings
for each period
• source document for payroll checks• source document for payroll journal entry
Employee’s Earnings Record
• all payroll information for one employee• includes column for accumulated earnings• totaled on a quarterly basis