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McGraw-Hill Ryerson

College Accounting First Canadian Edition Price • Haddock • Brock • Hahn • Reed. McGraw-Hill Ryerson. 1. CHAPTER 12. PAYROLL COMPUTATIONS, RECORDS, AND PAYMENT. 2. WHO IS AN EMPLOYEE?. One who is hired by the employer Under the control and direction of the employer

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McGraw-Hill Ryerson

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  1. College Accounting First Canadian Edition Price • Haddock • Brock • Hahn • Reed McGraw-Hill Ryerson 1

  2. CHAPTER 12 PAYROLL COMPUTATIONS, RECORDS, AND PAYMENT 2

  3. WHO IS AN EMPLOYEE? • One who is hired by the employer • Under the control and direction of the employer • Usually provided the tools or equipment by the employer • Generally controlled by the employer as to the number of hours worked and approach to the job 3

  4. Federal and Provincial Laws have a crucial impact on relationships between employers and employees. TAXES EARNINGS EMPLOYEE BENEFITS WORKING CONDITIONS 4

  5. OBJECTIVE 1 Explain the major federal and provincial laws relating to employee earnings and withholding. 5

  6. THE LABOUR STANDARDS ACT • Sets a minimum hourly rate of pay and also sets a maximum number of hours of work per week to be performed at the regular rate of pay. • Hours worked over 44 in any week to be paid at “time and a half” rate. In Ontario: $6.85 an hour for 44 hours. 6

  7. CANADA PENSION PLAN(CPP) • Levies a tax that is shared equally by employer and employee. • Provides three major categories of benefits: 1. Retirement benefit, or pension, when a worker reaches age 62. 2. Benefits for the dependents of a retired worker. 3. Benefits for the worker and the worker’s dependents when the worker is disabled. Presently 4.3% on the first $38,300 7

  8. INCOME TAX Employers are required to withhold an estimated amount of income tax from the employee’s earnings. 8

  9. EMPLOYER’S PAYROLL TAXES AND INSURANCECOSTS Employers must also pay taxes on their employees’ earnings. 1. Canada or Quebec pension plans 2. Employment insurance benefits 3. Workers’ Compensation Insurance 9

  10. CANADA OR QUEBEC PENSION PLAN • Employer required to pay amount equal to CPP tax withheld from employee’s base earnings. • Employer’s share of tax sent to federal government along with amounts withheld from employee’s paycheque. Currently 4.3% on the first $38,300 10

  11. EMPLOYMENT INSURANCE TAX Employers are required to pay a tax based on earnings to a maximum of $39,000. 11

  12. CPP Contributions for 2001 Maximum pensionable earnings $38,300.00 Annual basic exemption 3,500.00 Maximum contributory earnings 34,800.00 Contribution rate (4.3%) 0.043 Maximum employee contribution 1,496.40 Maximum employer contribution 1,496.40 Deduction for CPP stops when the employee reaches the maximum contribution for the year. EI Premiums for 2001 Maximum annual insurance earnings $39,000.00 Premium rate (2.25%) 0.0225 Maximum annual employee premium 877.50 Employer EI Premiums Employer EI premium is 1.4 times employee’s premium for the pay period 12

  13. INSURANCE PREMIUM • Rate for employment insurance premium is 2.25 percent of employee’s gross wage. • Employer must pay 1.4 times amount the employee contributes. 13

  14. WORKERS’ COMPENSATION INSURANCE • Reimburse employees for losses suffered from job-related injuries Some provinces have laws requiring employers to pay for insurance that will: • Compensate their families if death occurs in the course of their employment 14

  15. REQUIRED PAYROLL RECORDS • The name, address, social insurance number, and date of birth of each employee. THE MOST IMPORTANT RECORDS REQUIRED ARE: • Hours worked each day and week, wages paid at the regular rate, and overtime premium wages. • Cumulative amount of taxable wages paid throughout the year. • Amount of income tax, Canada or Quebec pension plan contributions, and employment insurance premiums withheld from each employee’s earnings for each pay period. 15

  16. OBJECTIVE 2 Compute gross earnings of employees. 16

  17. GROSS WAGE/SALARY EARNEDBY EACH EMPLOYEE Hourly-Rate Basis Hours Worked X Rate Per Hour Salary Basis Agreed Amount For Each Week, Month Or Other Period Commission Basis Percentage Of Net Sales Piece-Rate Basis Wages Based On Number Of Units Produced 17

  18. Computing Gross Pay Example 1 Cass Collins worked 44 hrs. @ $8.00 per hr. 44 hrs. X $8.00 = $352.00 Gross Pay Example 2 Enos Echols worked 48 hrs. 40 hrs. @ regular hourly rate of $7.00 and 8 hrs @ overtime rate of $10.50 $7.00  2 = $3.50 + $7.00 = $10.50 Regular time earnings: 40 hrs. @ $7.00 = $280.00 Overtime earnings: 8 hrs. X $10.50 = 84.00 Gross Pay = $364.00 18

  19. OBJECTIVE 3 Determine employee deductions for CPP contributions. 19

  20. DETERMINING CPP CONTRIBUTIONS • Both employee and employer pay an equal amount. • Multiply 4.3% (rate) times the first $38,300 (base) of gross wages for each employee, after $3,500 basic personal exemption has been subtracted. 20

  21. OBJECTIVE 4 Determine employee deductions for employment insurance premiums. 21

  22. DETERMINING DEDUCTIONS FOR EMPLOYMENT INSURANCE • Both employee and employer pay. • A rate of 2.25% is levied to a maximum of $39,000. 22

  23. OBJECTIVE 5 Determine employee deductions for income taxes. 23

  24. INCOME TAX The amount of income tax to be withheld from an employee’s earnings generally depends on the following: • Income earned during the pay period • Length of pay period • Number of exemption allowances 24

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  29. OTHER DEDUCTIONS REQUIRED BY LAW • Provinces require that provincial income tax be withheld from earnings of employees. 29

  30. WITHHOLDINGS NOT REQUIRED BY LAW Many kinds of deductions that are not required by law are made by agreement between the employee and the employer. • Life insurance • Group medical insurance covering the employee’s family • Employee’s share of company retirement plans • Union dues that will be deposited in a bank or a company credit union • Canada savings bonds, shares of stock, or other investment Examples are: 30

  31. SALARIED EMPLOYEES • Salaried employees earn a specific sum of money for each payroll period, whether it is weekly, biweekly, semimonthly, or monthly. • Salaried workers who do not hold supervisory jobs are generally covered by the provisions of the Labour Standards Act that deal with maximum hours and overtime premium pay. 31

  32. OBJECTIVE 6 Enter gross earnings, deductions, and net pay in the payroll register. 32

  33. PAYROLL REGISTER WEEK BEGINNINGJanuary 1, 2001 FED.NO. EARNINGS NAME CLAIM CUMULATIVE OF RATE REG. O/T GROSS CUMUL. CODE EARNINGS HRS. PREM AMT. EARNS. Collins, Cass 0 40 8.00 320.00 320.00 320.00 Echols, Enos 0 48 7.00 308.00 14.00 322.00 322.00 Johansen, Carol 3 40 6.85 274.00 274.00 274.00 Sanchez, Rita 6 40 10.00 400.00 400.00 400.00 Yamoah, Mill 1 40 300.00 300.00 300.00 300.00 1,602.00 14.00 1,616.00 1,616.00 (A) (B) (C) (D) (E) (F) (G) (H) (I) AND ENDINGJanuary 6, 20X5 PAID January 8, 20X5 TAXABLE WAGES DEDUCTIONS DISTRIBUTION CPP EI INC. HLTH NET CHQ. OFFICE SHPG. TAX INS. AMT. NO. SALS. WAGES 320.00 10.87 7.20 66.80 235.13 4725 320.00 322.00 10.95 7.25 67.65 236.15 4726 322.00 274.00 274.00 8.89 6.17 13.90 10.00 245.04 4727 274.00 400.00 400.00 14.31 9.00 48.30 10.00 328.39 4728 400.00 300.00 300.00 10.01 6.75 31.05 252.19 4729 300.00 1,616.00 1,616.00 55.03 36.37 227.70 20.00 1,296.90 300.00 1,316.00 (J) (K) (M) (N) (O) (P) (Q) (R) (S) (T) 33

  34. OBJECTIVE 7 Journalize payroll transactions in the general journal. 34

  35. JOURNALIZE DATA FROM THE PAYROLL REGISTER IN THE GENERAL JOURNAL 20x5 Jan. 8 Office Salaries Expense 5041 300.00 Shipping Wages Expense 5042 1,316.00 CPP Pay. 2021 55.03 EI Pay. 2022 36.37 Employee Inc. Tax Pay. 2023 227.70 Health Ins. Premiums Pay. 2024 20.00 Salaries and Wages Pay. 2029 1,276.90 Payroll for week ending January 6 350 35

  36. CASH PAYMENTS JOURNAL Page 1 ACCOUNTS SALARIES AND PURCHASES DATE CQ. EXPLANATION POST. PAYABLE WAGES PAYABLE DISCOUNT CASH NO. REF. DEBIT DEBIT CREDIT CREDIT 20X5 Jan. 2 703 Town Supply 600.00 12.00 588.00 Company 8 725 Cass Collins 235.13 8 726 Enos Echols 236.15 8 727 Carol Johansen 245.04 8 728 Rita Sanchez 328.39 8 729 Mill Yamoah 252.19 31 Totals xxxxxx 1,296.90 xxxxxx xxxxxxx 36

  37. 20x5 Jan. 8 Salaries and Wages Payable 1,276.90 Cash 1,276.90 Record cheque to payroll bank account. 37

  38. The major benefit of using a separate payroll account, if there are many employees, is it simplifies the bank reconciliation at the end of the month. A special payroll account makes it easier to quickly determine each month if there are outstanding payroll cheques. 38

  39. CASS COLLINS PAYROLL PERIOD : January 1 - January 6, 20X5 Gross: 320.00 Deductions: CPP 10.87 EI 7.20 Income Tax 66.80 84.87 Net Pay 235.13 Direct deposit will be available 1-8-X5 Direct Deposit Method 39

  40. OBJECTIVE 8 Maintain an earnings record for each individual employee. 40

  41. EARNINGS RECORD FOR 2001 NAME Cass Collins RATE $8 per hour SOC. INS. NO. 123-456-789 ADDRESS24 Oak Street, North Bay, ON P0A 1X0DATE OF BIRTH Jan. 23, 1970 WITHHOLDING ALLOWANCES1 MARITAL STATUSM DATE HOURS EARNINGS WK. PAID RG OT REGULAR OVERTIME TOTAL CUMU- END LATIVE TOTAL PAYROLL NO. 1 1/06 1/08 40 320.00 320.00 320.00 2 1/13 1/15 40 320.00 320.00 640.00 3 1/20 1/22 40 320.00 320.00 960.00 4 1/27 1/29 40 320.00 320.00 1,280.00 January 1,280.00 1,280.00 Individual Employee’s Earnings Record 41

  42. EARNINGS RECORD FOR 20X5 NAME Cass CollinsRATE$8 per hour SOC. SEC. NO. 123-45-6789 ADDRESS 24 Oak Street, Krum, TX 76249DATE OF BIRTH Jan. 23, 1970 WITHHOLDING ALLOWANCES 1 MARITAL STATUSM DATE HOURS EARNINGS DEDUCTIONS NET WK. PAID RG OT REGULAR CPP EI INCOME OTHER PAY END TAX PAYROLL NO. 1 1/06 1/08 40 320.00 10.87 7.20 66.80 235.13 2 1/13 1/15 40 320.00 10.87 7.20 66.80 235.13 3 1/20 1/22 40 320.00 10.87 7.20 66.80 235.13 4 1/27 1/29 40 320.00 10.87 7.20 66.80 235.13 January 1,280.00 43.48 28.80 267.20 940.52 Deduction Section of the Individual Earnings Record 42

  43. AND ENDING January 6, 20X5 PAID January 8, 20X5 DISTRIBUTION EMPLOY. HEALTH NET CHEQUE OFFICE SHIPPING INS. INS. AMOUNT NO. SALARIES WAGES 320.00 4725 320.00 322.00 4726 322.00 274.00 10.00 4727 274.00 400.00 10.00 4728 400.00 300.00 4729 300.00 1,616.00 20.00 300.00 1,316.00 (K) (P) (R) (S) (T) 20X5 Jan. 8 Office Salaries Expense 5041 300.00 Shipping Wages Expense 5042 1,316.00 CPP Pay. 2021 55.03 EI Pay. 2022 36.37 Employee Income Tax Pay. 2023 227.70 Health Ins. Premiums Pay. 2024 20.00 Salaries and Wages Pay. 2029 1,276.90 Payroll for week ending January 6 GENERAL JOURNAL 43

  44. GENERAL JOURNAL CASH PAYMENTS JOURNAL Page 1 ACCOUNTS SALARIES AND PURCHASES DATE CK. EXPLANATION POST. PAYABLE WAGES PAYABLE DISCOUNT CASH NO. REF. DEBIT DEBIT CREDIT CREDIT Jan. 2 4703 Town Supply 600.00 12.00 588.00 Company 31 Totals xxxxxx 5,107.60 xxxxxx xxxxxxx Salaries and Wages Payable 5,107.60 1/8 1,276.90 1/15 1,276.90 1/22 1,276.90 1/29 1,276.90 356 20X5 Jan. 8 Office Salaries Expense 5041 300.00 Shipping Wages Expense 5042 1,316.00 CPP Pay. 2021 55.03 EI Pay. 2022 36.37 Employee Income Tax Pay. 2023 227.70 Health Ins. Premiums Pay. 2024 20.00 Salaries and Wages Pay. 2029 1,276.90 Payroll for week ending January 6 Office Salaries Expense 1/8 300.00 1/15 300.00 1/22 300.00 1/29 300.00 EI Payable 1/8 36.37 1/15 36.37 1/22 36.37 1/29 36.37 Shipping Wages Payable 1/8 1,316.00 1/15 1,316.00 1/22 1,316.00 1/29 1,316.00 44

  45. GENERAL JOURNAL CASH PAYMENTS JOURNAL Page 1 ACCOUNTS SALARIES AND PURCHASES DATE CK. EXPLANATION POST. PAYABLE WAGES PAYABLE DISCOUNT CASH NO. REF. DEBIT DEBIT CREDIT CREDIT Jan. 2 4703 Town Supply 600.00 12.00 588.00 Company 31 Totals xxxxxx 5,107.60 xxxxxx xxxxxxx 356 20X5 Jan. 8 Office Salaries Expense 5041 300.00 Shipping Wages Expense 5042 1,316.00 CPP Pay. 2021 55.03 EI Pay. 2022 36.37 Employee Income Tax Pay. 2023 227.70 Health Ins. Premiums Pay. 2024 20.00 Salaries and Wages Pay. 2029 1,276.90 Payroll for week ending January 6 Employee Income Tax Pay. 1/8 227.20 1/15 227.20 1/22 227.20 1/29 227.20 Health Insurance Premiums Pay. 1/8 20.00 1/15 20.00 1/22 20.00 1/29 20.00 Shipping Wages Expense 1/8 1,316.00 1/15 1,316.00 1/22 1,316.00 1/29 1,316.00 CPP Pay. 1/8 55.03 1/15 55.03 1/22 55.03 1/29 55.03 45

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