Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 9 Employee Earnings, Deductions, and Payroll

9-2 Learning Objective 1 Describe the laws that affect employee payroll. The Fair Labor Standards Act applies to firms engaged in business across states. It sets a minimum wage. It sets 40 hours as the most an employee can be required to work in a week at the normal pay rate. Employees that work more than 40 hours in a work week receive overtime pay. This pay is at least one and one half times their normal pay rate for those overtime hours. LO1

9-3 Federal and State Income Tax Withholding An employee fills out a W-4 which is an Employee’s Withholding Allowance Certificate. Form W-4 provides information that the employer will use to determine how much federal taxes to withhold from the employees paycheck. The amount withheld depends on the employee’s marital status, his or her gross pay, and the number of withholding allowances the employee claims. LO1

9-4 Federal Insurance Contributions Act (FICA) The federal Social Security system pays benefits to qualified workers. The law requires employers to withhold FICA taxes from employees Rate 6.2% on first $106,800 The Medicare benefits includes all payments for medical purposes. Paid for with Medicare taxes. Employers must also match the Medicare tax payments made by their employees Rate 1.45% on all earnings LO1

9-5 Self-Employment Tax A person who operates their own business must pay both the employee and employer FICA taxes Social Security Rate 12.4% on first $106, Medicare Rate 2.9% on all earnings LO1

9-6 Jay Doe earns a normal wage of $10 per hour. His time sheet shows he worked 40 regular hours and 4 overtime hours. If overtime is paid at 1½ times, what is Jay’s gross pay for the week? Learning Objective 2 Compute employee gross pay. LO2

9-7 Learning Objective 3 Compute employee deductions for taxes and net pay. The employer uses a withholding table (called Circular E) from the IRS to compute the amount of federal taxes to withhold. LO3

9-8 Computing Net Pay Lets say Steve Roger’s gross pay is $420. Steve is single and claims zero withholding allowances. The state withholding tax rate is 8% of the dollar amount withheld for federal income tax. This is Steve’s first paycheck for the year. Steve does not have any voluntary deductions. What is Steve’s net pay? LO3

9-9 Computing Net Pay LO3

9-10 Learning Objective 4 Record employee payroll information in a payroll register. A payroll register is often used to keep a record of pay period dates, hours worked, gross pay, deductions, and net pay of each employee for each pay period. Register continued LO4

9-11 Learning Objective 5 Journalize payroll transactions in a general journal. The payroll register provides the data to prepare the journal entry to record the payroll in the general ledger accounts. LO5

9-12 Paying Employees from the Regular Bank Account Paying Employees from a Special Payroll Bank Account LO5

9-13 Learning Objective 6 Prepare an earnings record for each employee. Law requires employers to maintain employee earnings records that summarize each employee’s earnings, deductions, net pay, and total earnings during each calendar year. Information in these records is used to prepare quarterly and annual tax reports. LO6

9-14 Payroll activities present risks for the business owner, therefore it is essential to: 1.Hire Trusted Employees 2.Verify All Time Sheets 3.Secure Payroll Data 4.Keep Authorizations Learning Objective 7 Explain how an employer can control payroll. LO7

9-15 End of Chapter 9