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Payroll Accounting 2012 Bernard J. Bieg and Judith A. Toland

Payroll Accounting 2012 Bernard J. Bieg and Judith A. Toland. CHAPTER 2 . CHAPTER 2 COMPUTING WAGES & SALARIES. Developed by Lisa Swallow, CPA CMA MS. Learning Objectives. Explain the major provisions of the Fair Labor Standards Act Define hours worked

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Payroll Accounting 2012 Bernard J. Bieg and Judith A. Toland

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  1. Payroll Accounting 2012Bernard J. Bieg and Judith A. Toland CHAPTER 2 • CHAPTER 2 • COMPUTING WAGES & SALARIES Developed by Lisa Swallow, CPA CMA MS

  2. Learning Objectives • Explain the major provisions of the Fair Labor Standards Act • Define hours worked • Describe the main types of records used to collect payroll data • Calculate regular and overtime pay • Identify distinctive compensation plans

  3. 0 What is Minimum Wage? LO-1 • Includes all rates of pay including, but not limited to • Commissions • Nondiscretionary bonuses and severance pay • On-call or differential pay • Discretionary bonus (one which is not agreed upon or promised before hand) is not included in an employee’s regular rate of pay • Other types of compensation not included in regular rate of pay include • Gifts made as a reward for service • Payments for a bona fide profit-sharing plan • Vacation, holiday, sick day or jury duty pay • Vehicle, tool or uniform allowances

  4. 0 Tipped Employees *40 hours x $2.13/hour = $85.20 LO-1 • “Tipped employee” regularly average more than $30/month in tips • Minimum tipped wages is $2.13/hour, therefore tip credit = $5.12/hour – but may be calculated differently based upon state law • Employee must make $7.25/hour when combining tips/wages ($7.25 x 40 = $290 minimum weekly gross) • Tip credit remains the same for overtime pay calculation purposes • Examples of tips received for 40-hour work week #1. Reported tips = $43 • Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290 • No - so employer must pay additional wages ($290 - $43 = $247) #2. Reported tips = $1,189 • Is $85.20 + $1,189 > $290 • Yes – so employer pays $85.20 wages #3. Reported tips = $111 • Is $85.20 + $111 > $290 • No - so employer must pay additional wages of ($290 - $111 = $179)

  5. 0 Overtime Provisions & Exceptions LO-1 • Workweek established by corporate policy • Must be seven consecutive 24-hour periods • For example 12:01 a.m. Saturday - 11:59 p.m. Friday • Some states require daily overtime (OT) over 8 hours (if state plan is more generous than FLSA, state law is followed) • FLSA sets OT pay at 1.5 times regular pay • Exceptions to the above are as follows • Hospital employee, overtime for 80+ hours in 14 days or over 8 hours in a day (whichever is greatest) • Retail or service industry employees earning commission (special rules) • Employee receiving remedial education

  6. 0 Exempt vs. Nonexempt Employees LO-1 “Exempt” means exempt from some, or all, of FLSA provisions • White-collar workers as outlined in Figure 2-2 (p. 2-10) are exempt • Executives, administrators, professionals • Business owners, highly compensated employees • Computer professionals and creative professionals • Outside salespeople • Test of exemption found in text - certain salary and “primary duty” requirements must be met • Employee must be paid on salary basis at least $455/week • Blue collar workers are always entitledto overtime pay Note: Putting someone on salary doesn’t mean he/she is exempt!!

  7. 0 Determining Employee’s Work Time LO-2 • Principal activities require exertion, control or employer mandate • Prep at work station is principal activity and in some situations changing in/out of protective gear may be part of workday • Travel (when part of principal workday) is compensable • Idle time and wait time (waiting to provide employer’s service) • Rest periods under 20 minutes are principal activities (can’t make employee “check out”) • Meal periods are not compensable time unless employee must perform some tasks while eating – generally 30 minutes or longer • Work at home is principal activity for nonexempt employees • Sleep time is principal activity if required to be on duty less than 24 hours • Training sessions • Waiting for doctor’s appointment

  8. Records Used for Timekeeping • FLSA requires certain time and pay records be kept • Time sheets indicate arrival/departure time of employee • Computerized time/attendance recording systems • Card-generated systems use computerized time cards • Badge systems employ badges in conjunction with electronic time clocks • Cardless and badgelesssytems require that an employee use their PIN number to process timekeeping • PC-based system allows employee to clock in via computer • Next generation technology includes touch-screen kiosks, web-based, biometrics and interactive voice response LO-3

  9. 0 Computing Wages/Salaries LO-4 Most common pay periods are as follows • Biweekly (26) – 80 hours each pay period • Semi-monthly (24) - different hours each pay period • Monthly (12)- different hours each pay period • Weekly (52) – 40 hours each pay period Employer may have different pay periods for different groups within same company!

  10. Calculating Overtime Pay LO-4 There are two methods • Most common method • Calculate gross pay (40 hours x employee’s regular rate) • OT rate then calculated by multiplying 1.5 x employee’s regular rate x hours in excess of 40 • Other method • Calculate gross pay (all hours worked x employee’s regular rate) • Then calculate an overtime premium (hours in excess of 40 x overtime premium rate*) • Hourly rate x ½ = *overtime premium rate These methods result in same total gross pay!

  11. 0 Steps to Follow When Converting Period Wage Rates to Hourly Rates LO-5 Used to calculate pay for salaried nonexempt employees • Annualize salary • Calculate regular gross • Calculate hourly pay • Calculate overtime (OT) rate - (1.5 x hourly rate) • Add OT pay to regular gross

  12. 0 Piece Rate LO-5 • FLSA requires piecework earners to get paid for nonproductive time • Must equal minimum wage with OT calculated one of two ways Method A • Units produced x unit piece rate = regular earnings • Regular earnings/total hours = hourly rate • Hourly rate x 1/2 = OT premium • Regular earnings + (OT premium x OT hours) = gross pay or Method B • (Units produced in 40 hours x piece rate) + • [(Units produced in OT) x (1.5 x piece rate)] Note: two methods don’t give same results!!

  13. 0 Special Incentive Plans LO-5 • Special incentive plans are modifications of piece-rate plans • Used to entice workers to produce more • Computation of payroll is based on differing rates for differing quantities of production • Example of incentive plan • .18/unit for units inspected up to 2,000 units/week • .24/unit for units inspected between 2,001-3,500 units/week • .36/unit for units inspected over 3,500 units/week

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