Payroll Accounting

1. Chapter 12 $ Payroll Accounting Making Accounting Relevant Businesses issue payroll checks to their employees to compensate them for work performed. $ $ If you have a part-time job, what items appear on your pay stub? Do you verify that your gross earnings were properly calculated? $

2. Chapter 12 $ Section 1 Calculating Gross Earnings $ • What You’ll Learn • The importance of accurate payroll records. • How to calculate gross earnings. $ $

3. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ Why It’s Important For many businesses payroll is the largest expense. It is essential that the payroll system accurately determine the gross pay for each employee for every pay period. $ $ • Key Terms • payroll • pay period • payroll clerk • gross earnings • wage • salary • time card • electronic badge readers • commission • overtime rate $

4. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ The Importance of Payroll Records $ • The payroll is a list of the employees and the payments due to each employee for a specific pay period. • A pay period is the amount of time over which an employee is paid. $ $

5. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ The Importance of Payroll Records (cont'd.) $ $ $

6. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ Computing Gross Pay The total amount of money an employee earns in a pay period is gross earnings, or gross pay. An employee’s pay can be based on: $ $ • salary • hourly wage $ • commission • salary plus commission or bonus • overtime pay

7. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ Salary • A salary is a fixed amount of money paid to an employee for each pay period. • An employee who is paid a salary earns the same amount regardless of the number of hours worked during the pay period. $ $ $

8. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ Hourly Wage • A wage is an amount of money paid to an employee at a specified rate per hour worked. • The number of hours workedmultiplied by the hourly wage equals the gross earnings for the pay period. • Calculate the example! $ $ $

9. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ Commission • A commission is an amount paid to an employee based on a percentage of the employee’s sales. • Some salespeople earn a base salary plus a commission or a bonus on the amount of their sales. $ $ $

10. Section 1 Calculating Gross Earnings (cont'd.) Chapter 12 $ Overtime Pay • Employers are required to pay overtime when employees covered by certain state and federal laws work more than 40 hours per week. • The overtime rate, set by the Fair Labor Standards Act of 1938, is 1½ (1.5) times the employee’s regular hourly pay rate. • Perform Calculations! $ $ $

11. Chapter 12 $ Section 2 Payroll Deductions • What You’ll Learn • Why deductions are calculated and reported. • How to calculate deductions required by the federal government. • How to determine voluntary deductions. $ $ $

12. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Why It’s Important To prepare the payroll accurately and to comply with the law, both mandatory and voluntary deductions must be calculated correctly. $ $ • Key Terms • deduction • allowance • 401(k) plan $

13. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Computing Employee-Paid Withholdings $ • An amount that is subtracted from gross earnings is called a deduction. • Deductions include those required by law and those an employee wishes to have withheld from earnings. $ $

14. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Deductions Required by Law $ • Federal Income Tax • Social Security Tax • State and Local Income Taxes $ $

15. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Federal Income Tax The amount withheld for federal income taxes depends on three factors: $ • the employee’s marital status • the number of allowances claimed by the employee • the employee’s gross earnings $ $

16. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Social Security Tax There are two FICA taxes: Social Security and Medicare. The tax rates are as follows: Social security tax 6.20% Medicare tax 1.45% Total FICA taxes 7.65% (Deducted from each employee’s earnings until the maximum taxable earnings amount for the year is reached. This amount increases each year.) $ $ $

17. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ State and Local Income Taxes • In some states and cities, there are local income taxes. • They can be set tax rates based on a percentage of gross earnings. • In others, the amounts to be deducted are indicated ontables similar to the ones used for federal income tax. $ $ $

18. Section 2 Payroll Deductions (cont'd.) Chapter 12 $ Voluntary Deductions Common voluntary deductions include: $ • union dues • health insurance payments • life insurance payments • pension and other retirement contributions • credit union deposits and payments • U.S. savings bonds • charitable contributions $ $

19. Chapter 12 $ Section 3 Payroll Records $ • What You’ll Learn • The purpose of a payroll register. • How to prepare a payroll register. • How to prepare a payroll check. • The purpose of an employee’s earnings record. • How to prepare an employee’s earnings record. $ $

20. Section 3 Payroll Records (cont'd.) Chapter 12 $ Why It’s Important To comply with federal and state laws, payroll records must be kept accurately. $ • Key Terms • payroll register • net pay • direct deposit • employee’s earnings record • accumulated earnings $ $

21. Section 3 Payroll Records (cont'd.) Chapter 12 $ Preparing the Payroll Register The payroll register is a form that summarizes information about employees’ earnings for each pay period. $ $ $

22. Section 3 Payroll Records (cont'd.) Chapter 12 $ Preparing Payroll Checks The payroll register is the source of information for preparing the payroll checks. $ $ $

23. Section 3 Payroll Records (cont'd.) Chapter 12 $ • The Employee’s Earnings Record • An employer must keep an employee’s earnings record. • This record contains all of the payroll information related to an employee. $ $ $

24. Section 3 Payroll Records (cont'd.) Chapter 12 $ The Employee’s Earnings Record (cont'd.) This amount was carried forward from the previous quarter’s record. $ $ $ This amount will be carried forward to the next quarter’s record.