Payroll Liabilities PowerPoint Slides to accompany Fundamental Accounting Principles, 14ce Prepared by Joe Pidutti, Durham College Appendix 1 © 2013 McGraw-Hill Ryerson Limited.

1. Identify the taxes and other items frequently withheld from employees’ wages. (LO 1 ) 2. Make the calculations necessary to prepare a payroll register and prepare the entries to record and pay payroll liabilities. (LO 2 ) 3. Calculate the payroll costs levied on employers and prepare the entries to record the accrual and payment of these amounts. (LO 3 ) 4. Calculate and record employee fringe benefit costs. (LO 4 ) © 2013 McGraw-Hill Ryerson Limited. Learning Objectives 2

Employers are responsible for making proper deductions from their employees’ earnings. The employees’ deductions as well as the employer’s contribution must be remitted to the Receiver General. © 2013 McGraw-Hill Ryerson Limited. Payroll Deductions LO 1 3

Tax is deducted based on wages earned and personal tax credits. There is no matching by the employer for this deduction. © 2013 McGraw-Hill Ryerson Limited. Employees’ Income Tax LO 1 4

Statutory contribution requirements (as at December 9, 2011) 4.95% of eligible earnings to maximum of $2, per year (maximum pensionable earnings $50,100). The first $3,500 of earnings are exempt from CPP. The employer matches employee contributions 1:1. © 2013 McGraw-Hill Ryerson Limited. Canada Pension Plan (CPP) LO 1 5

Statutory contribution requirements for employees (as at January 1, 2012). 1.83% of insured earnings to a maximum of $ (maximum insurable earnings $45,900 per year). The employer contributes 1.4 times the employees’ contributions. © 2013 McGraw-Hill Ryerson Limited. Employment Insurance (EI) LO 1 6

Other deductions may be taken for: Donations to charitable organizations Pension plans Health, accident, life insurance premiums Purchases of savings bonds … © 2013 McGraw-Hill Ryerson Limited. Other Payroll Deductions LO 1 7

Gross Pay, deductions, and net pay are summarized by pay period in the payroll register. Columns are provided for employee earnings, each deduction, net payment amount, cheque number, salary expense account to be debited. See Exhibit A.2 in the textbook. The design of a payroll register is dependent on the needs of management and the requirements of various payroll-related laws. © 2013 McGraw-Hill Ryerson Limited. Payroll Register LO 2 8

© 2013 McGraw-Hill Ryerson Limited. The entry to record the payroll for textbook Exhibit A.2 is: Sales salaries expense 2, Office salaries expense 1, EI payable Employees’ Inc. tax payable Employees’ Hospital Ins. payable CPP payable Salaries payable 2, Gross pay Deductions Net pay less equals Recording the Payroll LO 2 9

Provides a summary of working time, gross earnings, deductions, and net pay for the year. It provides information to: Serve as a basis for the employer’s payroll tax returns. Indicates when earnings have reached the maximum amount for CPP and EI deductions. Serve as a basis for the employee’s T4 slips. © 2013 McGraw-Hill Ryerson Limited. Employee’s Individual Earnings Record LO 2 10

© 2013 McGraw-Hill Ryerson Limited. The entry to record the employer’s portion of CPP and EI for textbook Exhibit A.2 is: EI expense (1.4 x $65.22) CPP (or QPP) expense EI payable CPP (or QPP) payable Payroll Deductions Required of the Employer LO 3 11

© 2013 McGraw-Hill Ryerson Limited. The employees’ deductions and the employer’s portion are liabilities that must be remitted to the Receiver General. After recording the payroll, the payroll liability balances would be: EI PayableCPP (or QPP) Payable 65.22*156.43* 91.31**156.43** Hospital Ins. Payable Employees’ Inc. Tax Pay *478.55* * Employees’ contribution **Employer’s contribution Paying the Payroll Deductions LO 3 12

© 2013 McGraw-Hill Ryerson Limited. The entry to record the remittance to the Receiver General would be: EI Payable Employees’ Income Tax Payable CPP (or QPP) Payable Cash EI PayableCPP (or QPP) Payable Hospital Ins. Payable Employee Inc. Tax Pay Paying the Payroll Deductions LO 3 13

© 2013 McGraw-Hill Ryerson Limited. The entry to record the remittance for the hospital insurance premiums deducted would be: Employees’ Hospital Insurance Payable Cash Hospital Ins. Payable Paying the Payroll Deductions LO 3 14

The employer may pay for other payroll related expenses such as: Workers’ compensation (mandatory) Pension plans Life insurance Medical/Dental insurance Disability insurance Vacation pay (mandatory) © 2013 McGraw-Hill Ryerson Limited. Employee (Fringe) Benefit Costs LO 4 15

Example: An employer pays $200 towards a medical insurance plan and $1,250 towards a retirement plan for its’ employees. The entry to record this expense would be: Benefits Expense 1,450 Medical Insurance Payable 200 Retirement Program Payable 1,250 © 2013 McGraw-Hill Ryerson Limited. LO 4 Employee (Fringe) Benefit Costs 16

Vacation Pay Employers are required to allow their employees paid vacation time as a benefit of employment. The expense should be accrued as the employees are working. Deductions are not recorded until vacation pay is taken. © 2013 McGraw-Hill Ryerson Limited. LO 4 Employee (Fringe) Benefit Costs 17

The Payroll Register for T Co. showed the following information: gross wages, $800; EI deducted, $14.96; CPP deducted, $32.94; Income taxes deducted, $ Prepare the General Journal entry to record the payroll. © 2013 McGraw-Hill Ryerson Limited. Mini-Quiz 18

The Payroll Register for T Co. showed the following information: gross wages, $800; EI deducted, $14.96; CPP deducted, $32.94; Income taxes deducted, $ Wages expense EI payable14.96 CPP payable Income tax payable Wages payable © 2013 McGraw-Hill Ryerson Limited. Mini-Quiz 19

The Payroll Register for T Co. showed the following information: gross wages, $800; EI deducted, $14.96; CPP deducted, $32.94; Income taxes deducted, $ EI expense(1.4x$14.96)20.94 CPP expense EI payable CPP payable © 2013 McGraw-Hill Ryerson Limited. Mini-Quiz 20

End of chapter © 2013 McGraw-Hill Ryerson Limited. 21