Payroll Liabilities C H A P T E R 11 © 2007 McGraw-Hill Ryerson Ltd. Electronic Presentations in Microsoft® PowerPoint®

1. Identify the taxes and other items frequently withheld from employees’ wages. 2. Make the calculations necessary to prepare a Payroll Register and prepare the entries to record and pay payroll liabilities. 3. Calculate the payroll costs levied on employers and prepare the entries to record the accrual and payment of these amounts. 4. Calculate and record employee fringe benefit costs. Learning Objectives © 2007 McGraw-Hill Ryerson Ltd.

 Tax is deducted based on wages earned and personal tax credits.  There is no matching by the employer for this deduction. Employees’ Income Tax © 2007 McGraw-Hill Ryerson Ltd.

Statutory contribution requirements (as at January 1, 2006)  4.95% of eligible earnings to maximum of $1, per year (maximum pensionable earnings $42,100).  The first $3,500 of earnings are exempt from CPP.  The employer matches employee contributions 1:1. Canada Pension Plan (CPP) © 2007 McGraw-Hill Ryerson Ltd.

Statutory contribution requirements for employees (as at January 1, 2006)  1.87% of insured earnings to a maximum of $ (maximum insurable earnings $39,000 per year).  The employer contributes 1.4 times the employees’ contributions. Employment Insurance (EI) © 2007 McGraw-Hill Ryerson Ltd.

Other deductions may be taken for:  Donations to charitable organizations  Pension plans  Medical and dental plans  Union dues  Purchases of savings bonds …… Other Payroll Deductions © 2007 McGraw-Hill Ryerson Ltd.

 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  The design of a payroll register is dependent on the needs of management and the requirements of various payroll-related laws. Payroll Register © 2007 McGraw-Hill Ryerson Ltd.

The entry to record the payroll for textbook Exhibit 11.2 is: Sales salaries expense 2, Office salaries expense 1, EI payable Employees’ Inc. tax payable Employees’ Hospital Ins. payable CPP payable Salaries payable Gross pay Deductions Net pay less equals Recording the Payroll © 2007 McGraw-Hill Ryerson Ltd.

The entry to record the employer’s portion of CPP and EI for textbook Exhibit 11.2 is: EI expense (1.4 x $66.65) CPP expense EI payable CPP payable Payroll Deductions Required of the Employer © 2007 McGraw-Hill Ryerson Ltd.

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 66.65*156.66* **156.66** Income Tax Payable Hospital Ins. Payable *120.00* *Employees’ contribution **Employer’s contribution Paying the Payroll Deductions © 2007 McGraw-Hill Ryerson Ltd.

The entry to record the remittance to the Receiver General would be: EI Payable Employee Income Tax Payable CPP (or QPP) Payable Cash EI PayableCPP (or QPP) Payable Income Tax Payable Hospital Ins. Payable Paying the Payroll Deductions © 2007 McGraw-Hill Ryerson Ltd.

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 © 2007 McGraw-Hill Ryerson Ltd.

The employer may pay for other payroll related expenses such as:  Life insurance  Medical/Dental insurance  Disability insurance  Pension plans  Workers’ compensation (mandatory)  Vacation pay (mandatory) Employee (Fringe) Benefit Costs © 2007 McGraw-Hill Ryerson Ltd.

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 Employee (Fringe) Benefit Costs © 2007 McGraw-Hill Ryerson Ltd.

Vacation Pay  The expense should be accrued as the employees are working.  Deductions are not recorded until vacation pay is taken. Employee (Fringe) Benefit Costs © 2007 McGraw-Hill Ryerson Ltd.

The Payroll Register for TC 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. Mini-Quiz © 2007 McGraw-Hill Ryerson Ltd.

The Payroll Register for TC 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 Mini-Quiz © 2007 McGraw-Hill Ryerson Ltd.

The Payroll Register for TC 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 employer’s payroll expenses. Mini-Quiz © 2007 McGraw-Hill Ryerson Ltd.

The Payroll Register for TC 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 Mini-Quiz © 2007 McGraw-Hill Ryerson Ltd.

End of chapter © 2007 McGraw-Hill Ryerson Ltd.