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Chapter 11

Chapter 11. Payroll. Terms to Know. Salary - Specific amount paid per month or per year (usually has a contract) Wages – Based on a rate per hour or piecework. Payroll – Pay and benefits paid to employees Gross Earnings – Wages/Salary before any deductions.

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Chapter 11

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  1. Chapter 11 Payroll

  2. Terms to Know • Salary - Specific amount paid per month or per year (usually has a contract) • Wages – Based on a rate per hour or piecework. • Payroll – Pay and benefits paid to employees • Gross Earnings – Wages/Salary before any deductions. • Bonus – Amount paid over and above salary/wages

  3. Terms to Know • Deductions – Amount deducted from gross pay. (Also known as withholding) • Income Taxes – Amount paid to government(state, city and federal) • FICA – Federal Insurance Contribution Act (amount paid by employee and employer) (Divided intro Social Security and Medicare) • Employer – Owner of business • Employee – Person working for a business • Employee Earnings Record - An individual summary of pay and deductions for a year.

  4. Terms to Know • Federal Unemployment Taxes – Paid by employer for laid off workers. • State Unemployment Taxes – Paid by employer to state for laid off workers. • W2 – Statement sent to employee which records pay and deductions for a year. • Payroll Tax Expense – Journal Entry to record payroll taxes due the state/federal government. • Salary Expense – Payroll paid to employees and record of deductions. • Payroll Register – A record that has all information for the payroll in a single form.

  5. Terms to Know • Semi-Monthly – Paid twice a month (24 pay periods) • Bi-Weekly – Paid every two weeks (26 pay periods)

  6. Step 1Determine the Amount of Pay • Wages per hour • Hours x rate = gross pay • (40 hours x $7 = $280) • Overtime hours (usually 1-1/2) 2 hours x 10.50 (7 x1.5) = $21.00 - Total Gross pay $280 + 21.00 = $301.00

  7. You Decide • Eleanor works at COSCO, she earns $8.50/hr. She worked 8 hours each day for five days and worked 3 hours overtime on Friday. Compute her gross pay.

  8. Deductions • Federal Income Tax • Determined by gross pay and allowances claimed on your W-4. • Let’s look at Page 460 • Michael Jordon made $516 for the week and claims 2 allowances, what is his Federal Income Tax deduction.

  9. State and Local Taxes • States have different rates they deduct from employees pay (Let’s say Michigan is 5%) • Certain cities also have income taxes (Let’s say Detroit is 1%) • These percentages are computed on the gross pay • Let’s determine Michael’s Federal and Local Taxes that will be deducted.

  10. FICA/Medicare Taxes • The Federal Government also deducts FICA/Medicare Taxes • These taxes are used for social security (retired people) and for Medicare and Medicaid recipients. • In 2008, the rate is 7.65% (6.2% for social security and 1.45% for Medicate) for the first $100,000 of wages. • Let’s determine Michael’s deductions for FICA taxes.

  11. Other Deductions • There are several other deductions that can be taken from someone’s pay. • Examples: • Health Insurance Premiums • Vision Insurance Premiums • Dental Insurance Premiums • Loan Payments • Savings/Credit Union • Garnishments • Union Dues • Alimony/Child Support Payments

  12. Michael’s Deductions • Michael has the following deductions from his weekly pay • Health Insurance $70.00 • Savings $50.00 • Union Dues $20.00

  13. Net Pay • The pay you bring home is gross pay – deductions. • Determine what is Michael’s take-home pay. • Let’s do another • Page 516 (E11-10) • And another • Page 516(E11-11)

  14. Recording the Payroll • Now the employer records everything • Employee Earnings Record (Page 499) • Payroll Register (Page 499) • Journal Entry for Payroll (Page 500) • Record the Payment (Page 500) • Generate Checks and Check Stubs

  15. Employer Taxes • Employer must also pay the same percentage for FICA taxes as the employee. • Employer also pays State Unemployment Taxes and Federal Unemployment Taxes. • Employer may also pay a pension payment for their employees.

  16. Computation of Employer Taxes • FICA (Same rate as employee) • State Unemployment (5.4% on first $7,000 earned) (Called SUTA) • Federal Unemployment (.8% on first $7,000 earned) (FUTA) • There is a credit for paying State Unemployment Taxes on time.

  17. Entry • Employer Tax Expense FICA Tax Pay Fed. Unempl Tax Payable State Unempl Tax Payable (Record Employer Taxes)

  18. Paying Employer Taxes • What do you think would be the entry when the company pays the SUTA and FUTA taxes?

  19. Journalize the Payroll Taxes • Example on Page 503 • Let’s try • Page 517 E11-14 • More • Page 517 E11-12

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