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Payroll

Payroll. Don’t we wish that just once, we could get our GROSS pay and not our NET pay!!!!! Let’s compute Gross Pay General rule = Employees ( Ee ) who work > 40 hours in a week get OVERTIME at one and one-half (or 1.5) times their normal pay rate

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Payroll

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  1. Payroll • Don’t we wish that just once, we could get our GROSS pay and not our NET pay!!!!! • Let’s compute Gross Pay • General rule = Employees (Ee) who work > 40 hours in a week get OVERTIME at one and one-half (or 1.5) times their normal pay rate • Example = Ee ($10 hourly rate) works 41 hours, Gross Pay = $415 = $10 x 40 hours and $15 [$10 x 1.5] x 1 hour • Or an alternative = $10 x 41 hours = $410 + $5 [½ of $10 hourly pay x 1 hour]

  2. Payroll Withholding • Employers (Er) are REQUIRED to withhold certain amounts from Ee– for our purposes Federal Income Tax (FIT), Social Security (SS) and Medicare (Med) – others may include health insurance, retirement, union dues, etc. • For our hypothetical employee, we will use FIT of 10%, SS of 6% and Med of 2% • These amounts withheld become a LIABILITY of the corporation!

  3. Computations • Using our previously computed gross pay of $415: • FIT = $41.50 ($415 x 10%) • SS = $24.90 ($415 x 6%) • Med = $8.30 ($415 x 2%) • We will not worry about this for our first JE, but the Er must also match SS up to the maximum wage base (usually varies each year) and must match ALL of the Med withheld

  4. JE for our facts Wage expense $415 FIT payable $ 41.50 SS payable $ 24.90 Med payable $ 8.30 Cash (or Wages payable if accrued) $340.30 *** Cash (or wages payable) becomes the amount needed to make our Debits = our Credits --- and is NET pay

  5. Maximum SS wage base • Now, we will consider what payroll looks like where an Ee exceeds the maximum SS wage base --- for our purposes, we will assume the maximum wage base is $100,000 • Facts: Prior to the current payroll period, our Ee has earned gross pay of $96,000 and current gross pay is $10,000 • We will use our same FIT of 10%, SS of 6% and Med of 2%

  6. Maximum SS wage base (cont.) • Here is the trick. This Ee will “MAX” out on SS for the year during the current payroll period • Why? ---- Because with her current payroll period gross pay of $10,000, she will have $106,000 of gross pay for the year • Result? ---- She will only owe SS on the $4,000 of her gross pay that gets her to the $100,000 MAX (and her Er will only have to match on the $4,000 as well)

  7. JE with “Maxing” out on SS • Wage Expense $10,000 FIT payable (10%) $1,000 SS payable (*see below) $ 240 Med payable (2% on ALL wages) $ 200 Cash (or Wages payable) $8,560 *SS of 6% on the first $4,000 of gross pay = $240 AND the additional $6,000 (and any other gross pay this year) is NOT subject to SS

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