Preparing Payroll Records CHAPTER 13 Preparing Payroll Records

Define accounting terms related to payroll records OBJECTIVES: Define accounting terms related to payroll records Identify accounting practices related to payroll records Complete a payroll time card Calculate payroll taxes Complete payroll register and an employee earnings record Prepare payroll checks

Ways Employees Are Paid Salary - $ per week, month, or year Wages - $ per hour Pay Period - How often an employee is paid - usually bi-weekly, can be weekly, bi-monthly, or monthly Payroll - The total amount earned by all employees for a pay period Overtime Pay: increased pay for extra hours worked, either 8+ hours per day or 40+ hours per week Usually not eligible if salaried Payroll time cards: Record the time employees work Time is recorded to nearest quarter hour

CH 13-1: Preparing Payroll Time Cards Must keep special payroll records to support the recording of payroll transactions in a journal: Employee earnings record – individual Payroll register – all employees Records are used: To inform employees of their annual earnings For business to prepare payroll records for government

ANALYZING A PAYROLL TIME CARD Lesson 13-1 (GJ) ANALYZING A PAYROLL TIME CARD

CALCULATING EMPLOYEE HOURS WORKED 1. Calculate regular hours. 2. Calculate overtime hours. 3. Add Hours Reg and Hours OT columns and enter totals. 4. Add Hours column. 1 2 **Round times to nearest quarter hour 3 Lesson 13-1, page 313 4

Gross Pay (total before deductions) = Hours X Rate Employee A worked 40 hours and was paid $8.00 an hour. 40 x 8 = $320.00 Gross Pay Employee B worked 40 regular hours and 2 overtime hours at $8.00 an hour. 40 x 8 = $320.00 Regular 2 x 12 = 24.00 Overtime (OT = $8 x 1.5 = $12) $344.00 Gross Pay Net Pay = Gross Pay – Deductions

CALCULATING EMPLOYEE TOTAL EARNINGS 1. Enter the rate for regular time. 2. Calculate regular earnings. Reg hours * Reg rate 3. Enter the rate for overtime. 4. Calculate overtime earnings. OT hours * OT Rate 5. Calculate Total Earnings. ***AKA*** Gross Pay or Gross Earnings 1 2 3 4 5 Lesson 13-1, page 314

TERMS REVIEW salary pay period payroll total earnings TO DO: Work Together, pg 315 On your own, pg 315

CHAPTER 13-2: Determining Payroll Tax Withholdings Payroll taxes: taxes based on payroll of the business Business is required by law to withhold certain payroll taxes from employee salaries All are based on employee total earnings must keep accurate and detailed records Errors incorrect tax payments state and federal government penalties Liability for the employer until paid to government

Employer must keep payroll records for: Federal Government Employee Income Tax: Must withhold federal income taxes from total earnings Forwarded periodically to federal government Many states also require state income taxes withheld Employer must keep payroll records for: Federal Government State Government County Government Local Government

Form W-4: Employee’s Withholding Allowance Certificate Withholding allowance: deduction from total earnings for each person legally supported by tax payer, including employee Must be filled out by every employee kept current Determines amount employer withholds from the employee’s pay check.

Five Filing Statuses – to determine amount of tax withheld Single Married Married Filing Separately Widow/Widower Head of Household

ITEM 7 on W-4 Claiming Exemption from Withholding for certain low-income, part-time employees Employer would not withhold income tax because you would owe none at the end of the year. Must STILL fill out W-4 TO qualify: Cannot earn over $700 Cannot have earned any interest or dividends Cannot be claimed by another person International student / foreign employee from temporary visa

EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE Lesson 13-1 (GJ) EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE 2 1 3 4 5 1. Name and Address 4. Withholding Allowances 2. Social Security Number 5. Signature and Date 3. Marital Status

EMPLOYEE’S INCOME TAX WITHHOLDING—SINGLE PERSONS

EMPLOYEE’S INCOME TAX WITHHOLDING—MARRIED PERSONS Selby: Married $1137.00 4 At least But Less than 1,120 1,140 63 Lesson 13-2, page 319

Payroll Taxes Paid by Employee FICA (Federal Insurance Contributions Act) Social Security 6.5% (old-age, survivors, disability) Medicare 1.5% (hospital insurance) Total 8% (paid by both employee AND employer) Tax Base for 1997 is $65,400 (used for book) 2007 - $97,500 2008 - $102,000 Medicare – proportional at all levels (no tax base) Federal Income Tax Rates are from 15% to 38.6 % Amount Paid depends on: Exemptions claimed Filing Status Gross Pay State Income Tax - PA 2.8% Local Income Tax – Upper Saucon 1% - Lower Saucon 2%

Social Security and Medicare - Same rate as employee Taxes Paid by Employer Social Security and Medicare - Same rate as employee Federal Unemployment – 0.8% (first $7000) State Unemployment – 5.4% (first $7000) (more details later)

EMPLOYEE SOCIAL SECURITY AND MEDICARE TAX     Calculate Social Security Tax Deduction Total Social Security Social Security Earnings  Tax Rate = Tax Deduction $1,137.00  6.5% = $73.91     Calculate Medicare Tax Deduction Total Medicare Medicare Earnings  Tax Rate = Tax Deduction $1,137.00  1.5% = $17.06

TERMS REVIEW *************************** TO DO: Work Together, 321 payroll taxes withholding allowance social security tax Medicare tax tax base *************************** TO DO: Work Together, 321 On your own, 321 Application Problems 13-1, 13-2, pg 331

Chapter 13-3: Preparing Payroll Records Payroll Register: Summarizes Gross & Net Pay and deductions for all employees for 1 payroll period. Remember: Partners are not employees and are not paid salaries – how are they paid???? *****Payroll is an expense of the business*****

PAYROLL REGISTER 1. Pay Period Date 8. Health Insurance Lesson 13-1 (GJ) PAYROLL REGISTER 1 2 11 13 4 5 6 7 8 9 10 3 12 1. Pay Period Date 8. Health Insurance 2. Payment Date 9. Other Deductions 3. Employee Personal Data 10. Total Deductions 4. Earnings 11. Net Pay 5. Federal Income Tax 12. Total, Prove, and Rule 6. Social Security Tax 13. Check Number 7. Medicare Tax

Voluntary/Other Deductions – Column 8 Union dues - U Savings /Retirement – S or R Insurance – Life - L United Way - UW US Savings Bonds - B Company Stock options Health, Travel fund, etc. Anything employer and employee agree upon.

Employee Earnings Record Business form used to record details affecting payments made to each employee New record prepared each quarter for each employee Info needed to prepare it is taken from the payroll register Must send quarterly reports to government agencies showing: Employee taxable earnings Taxes withheld

EMPLOYEE EARNINGS RECORDS 5 5. Earnings, Deductions, Net Pay 1. Last day of Quarter 1 2. Employee Personal Data 3. Beginning Accumulated Earnings 2 3 4. Pay Period 4 6 7 6. Updated Accumulated Earnings = Acc. Earnings + TOTAL earnings Lesson 13-3, page 324 7. Total and Prove

TERMS REVIEW payroll register net pay employee earnings record TO DO: Work Together, pg 326 On your own, pg 326 Lesson 13-3, page 326

Chapter 13-4: Preparing Payroll Checks A separate checking account is set up for payroll. One check is made out for the TOTAL net wages and deposited into the payroll checking account. Then individual checks are made to each employee from this account. Helps to protect and control payroll payments INFO is taken from payroll register

PAYROLL BANK ACCOUNT 1 2 1. Prepare the check stub. Lesson 13-1 (GJ) PAYROLL BANK ACCOUNT 1 1. Prepare the check stub. 2 2. Prepare the check. Lesson 13-4, page 327

Voucher check This is a check with a description of the attached check. An employer must give an employee a voucher check for his wages. It must show gross pay (regular and overtime), deductions, and net pay. Employee's Earnings Record: This is a record of one employee’s pay for the entire quarter.

EMPLOYEE’S PAYROLL CHECK 1 1. Enter on check stub information from payroll register. 2 2. Prepare employee’s payroll check for net amount of earnings. Lesson 13-4, page 328

Automatic Check Deposit The employee authorizes the employer to deposit his payroll check into a particular checking or savings account. EFT: Electronic Fund Transfer A check is never made out; it is a computer transaction. The employee receives a check stub with payroll information.

TO DO: Work Together, pg 329 On your own, pg 329 Application Problems 13-3, 13-4, pg 331-332