Payroll Computations, Records, and Payment

1. 10-1

2. Payroll Computations, Records, and Payment Section 1: Payroll Laws and Taxes Chapter 9 discussed several aspects of business accounting, including special journals, the petty cash fund, and bank reconciliations. Chapter 10 continues the study of business accounting by discussing payroll accounting. Section 1 explains the major federal laws relating to employee earnings and withholdings. The first objective of the chapter explains the major federal laws relating to employee earnings and withholding. Chapter 9 discussed several aspects of business accounting, including special journals, the petty cash fund, and bank reconciliations. Chapter 10 continues the study of business accounting by discussing payroll accounting. Section 1 explains the major federal laws relating to employee earnings and withholdings. The first objective of the chapter explains the major federal laws relating to employee earnings and withholding.

3. 10-3 Characteristics of an Employee Works under the control and direction of the employer Uses tools or equipment provided by the employer Works certain hours that are set by the employer An employee is a person who is hired by and works under the control and direction of the employer. There are several common characteristics of an employee. In most situations, an �employee� works in the employer�s facility, using the employer�s tools, under the employer�s direct supervision. An independent contractor works unsupervised, usually away from the employer�s facility. This chapter discusses the withholding for an employee, not an independent contractor. An employee is a person who is hired by and works under the control and direction of the employer. There are several common characteristics of an employee. In most situations, an �employee� works in the employer�s facility, using the employer�s tools, under the employer�s direct supervision. An independent contractor works unsupervised, usually away from the employer�s facility. This chapter discusses the withholding for an employee, not an independent contractor.

4. 10-4 What are the major laws relating to employee earnings and withholding?What are the major laws relating to employee earnings and withholding?

5. 10-5 Also referred to as the Wage and Hour Law Applies only to firms engaged directly or indirectly in interstate commerce Sets a minimum hourly rate of pay and maximum hours of work per week to be performed at the regular rate of pay The Fair Labor Standards Act of 1938 The most significant law is the Fair Labor Standards Act. This is sometimes referred to as the Wage and hour Law. The law applies to firms engaged directly or indirectly in interstate commerce. The Fair Labor Standards Act fixes minimum wage and the maximum number of hours or work per week to be performed at the regular rate of pay. Hours worked in excess of 40 must be paid at one and one-half times the regular rate of pay. The most significant law is the Fair Labor Standards Act. This is sometimes referred to as the Wage and hour Law. The law applies to firms engaged directly or indirectly in interstate commerce. The Fair Labor Standards Act fixes minimum wage and the maximum number of hours or work per week to be performed at the regular rate of pay. Hours worked in excess of 40 must be paid at one and one-half times the regular rate of pay.

6. Payroll Computations, Records, and Payment Section 2: Calculating Earnings and Taxes Section 2 of the chapter deals with the actual withholding calculations and recording those calculations in the payroll register. The second objective of the chapter explains how to compute gross earnings of employees. Section 2 of the chapter deals with the actual withholding calculations and recording those calculations in the payroll register. The second objective of the chapter explains how to compute gross earnings of employees.

7. 10-7 Hourly rate basis Salary basis Commission basis Piece-rate basis Objective two of this chapter is to compute the gross earnings of employees. The first step in preparing payroll is to compute the gross wages or salary for each employee. There are several ways to compute earnings. You should practice computing these wages and salaries for each type of employee.Objective two of this chapter is to compute the gross earnings of employees. The first step in preparing payroll is to compute the gross wages or salary for each employee. There are several ways to compute earnings. You should practice computing these wages and salaries for each type of employee.

8. 10-8 Objective 3 has us calculating social security deductions. Any wages in excess of $97,500 are not subject to social security tax. If an employee works for more than one employer, FICA taxes are deducted and matched by each employer. When the employee files a federal income tax return, any excess tax is refunded. (The employer, however would not receive any refund.) To determine the amount of social security tax to withhold, multiply the taxable wages by the social security tax rate and round off to the nearest cent. Remember that anything above the maximum wages is not subject to the tax. Objective 3 has us calculating social security deductions. Any wages in excess of $97,500 are not subject to social security tax. If an employee works for more than one employer, FICA taxes are deducted and matched by each employer. When the employee files a federal income tax return, any excess tax is refunded. (The employer, however would not receive any refund.) To determine the amount of social security tax to withhold, multiply the taxable wages by the social security tax rate and round off to the nearest cent. Remember that anything above the maximum wages is not subject to the tax.

9. 10-9 Remember that there is no limit on the wages subject to medicare tax. In this pay period, $25.63 was withheld from all employees wages for medicare tax.Remember that there is no limit on the wages subject to medicare tax. In this pay period, $25.63 was withheld from all employees wages for medicare tax.

10. 10-10 A substantial portion of the federal government�s revenue comes from the income tax on individuals. Withholding depends on earnings, length of pay period, marital status, and number of allowances.A substantial portion of the federal government�s revenue comes from the income tax on individuals. Withholding depends on earnings, length of pay period, marital status, and number of allowances.

11. 10-11 To claim withholding allowances, each employee completes an Employee�s Withholding Allowance Certificate, Form W-4.To claim withholding allowances, each employee completes an Employee�s Withholding Allowance Certificate, Form W-4.

12. 10-12 Most states and some local governments require employees to withhold state and local income taxes as well.Most states and some local governments require employees to withhold state and local income taxes as well.

13. 10-13 Can you think of any other types of deductions which you could voluntarily have withheld from your paycheck? Can you think of any other types of deductions which you could voluntarily have withheld from your paycheck?

14. 10-14 Objective 6 is to enter gross earnings, deductions, and net pay in the payroll register. A payroll register is a record of payroll information for each employee for the pay period. Alicia Martinez has one withholding allowance and she is married. She worked 40 hours this week and is paid $10 per hour.Objective 6 is to enter gross earnings, deductions, and net pay in the payroll register. A payroll register is a record of payroll information for each employee for the pay period. Alicia Martinez has one withholding allowance and she is married. She worked 40 hours this week and is paid $10 per hour.

15. Payroll Computations, Records, and Payment Section 3: Recording Payroll Information The third section of the chapter demonstrates how to record payroll information for the pay period. The seventh objective of the chapter explains how to journalize payroll transactions in the general journal.The third section of the chapter demonstrates how to record payroll information for the pay period. The seventh objective of the chapter explains how to journalize payroll transactions in the general journal.

16. 10-16 It is now time for us to journalize the payroll and the withholdings. We will journalize the payroll transactions in the general journal, although they could be journalized in the cash payments journal instead. We use the totals in the payroll register columns as the basis for our general journal entry to record the payroll. We will make two separate journal entries.It is now time for us to journalize the payroll and the withholdings. We will journalize the payroll transactions in the general journal, although they could be journalized in the cash payments journal instead. We use the totals in the payroll register columns as the basis for our general journal entry to record the payroll. We will make two separate journal entries.

17. 10-17 Employers must maintain individual earnings information in an individual earnings record. An individual earnings record is a record that contains information needed to compute earnings and complete tax reports. Employers must maintain individual earnings information in an individual earnings record. An individual earnings record is a record that contains information needed to compute earnings and complete tax reports.

18. 10-18