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Payroll Accounting 2013 Bernard J. Bieg and Judith A. Toland

Payroll Accounting 2013 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 2013 Bernard J. Bieg and Judith A. Toland

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  1. Payroll Accounting 2013Bernard 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? • 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 LO-1

  4. 0 Tipped Employees • “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 workweek • #1. Reported tips = $43 • Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290 - (No - so employer must pay additional wages of $290 - $43 = $247) • #2. Reported tips = $1,189 • Is $85.20 + $1,189 > $290 - (Yes – so employer pays $85.20 wages) Note: states’ tip credit percentages may differ from federal law *40 hours x $2.13/hour = $85.20 LO-1

  5. 0 Overtime Provisions & Exceptions • 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 • Employer can require employees to work overtime • 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 LO-1

  6. 0 Exempt vs. Nonexempt Employees “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 means employee must meet ‘primary duty’ requirements listed in Figure 2-2 • Employee must be paid on salary basis at least $455/week • Blue collar workers are always entitledto overtime pay – includes police officers, EMTs, firefighters, paramedics and LPNs Note: Putting someone on salary doesn’t mean he/she is exempt!! LO-1

  7. 0 Determining Employee’s Work Time • Principal activities require exertion, and are required by the employer and for the employer’s benefit • 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 < 24 hours • Training sessions (with certain caveats) • Waiting for doctor’s appointment on site LO-2

  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 IVR (interactive voice response) LO-3

  9. 0 Computing Wages/Salaries 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! LO-4

  10. Calculating Overtime Pay 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! LO-4

  11. 0 Salaried Nonexempt Employees - Fluctuating Workweek • Employee and employer may forge an agreement that a fluctuating schedule on a fixed salary is acceptable • Overtime is calculated by dividing normal salary by total hours worked • Then an extra .5 overtime premium is paid for all hours worked over 40 or • Can divide fixed salary by 40 hours – gives different pay rate each week • Then an extra .5 overtime premium is paid for all hours worked over 40 • Alternative – BELO Plan • Appropriate for very irregular work schedule • Deductions cannot be made for non-disciplinary absences • Guaranteed compensation cannot be for more than 60 hours • Calculate salary as wage rate multiplied by maximum number of hours and then add 50% for overtime LO-5

  12. 0 Piece Rate • 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!! LO-5

  13. 0 Special Incentive Plans • 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 LO-5

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