DETERMINING AND PAYING THE PAYROLL

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Presentation transcript:

DETERMINING AND PAYING THE PAYROLL Determining the payroll involves calculating 1. gross earnings, 2. payroll deductions, and 3. net pay.

GROSS EARNINGS Gross earnings is the total compensation earned by an employee. There are three types of gross earnings: 1. wages 2. salaries 3. bonuses Total wages are determined by applying the hourly rate of pay to the hours worked. Most companies are required to pay a minimum of one and one-half times the regular hourly rate for overtime work.

PAYROLL DEDUCTIONS The difference between gross pay and the amount actually received is attributable to payroll deductions. Mandatory deductions consist of Canada Pension Plan (CPP, or QPP in Quebec), employment insurance (EI) and personal income tax. 20

EMPLOYER PAYROLL COSTS CPP The employer must match each employee’s CPP contribution. EI The employer is required to contribute 1.4 times each employee’s EI deductions. Workplace Health, Safety, and Compensation Employers pay a specified percentage of their gross payroll to provide supplemental benefits for workers who are injured or disabled in the workplace. 21

RECORDING THE PAYROLL Many companies use a payroll register to accumulate the gross earnings, deductions, and net pay by employee for each period. In some cases, this record is a journal or book of original entry. The typical entry to record the employee costs in a payroll is to debit Salaries or Wages expense and to credit a variety of liability accounts. When the payroll is paid, the liability accounts are debited and Cash is credited.

RECOGNIZING PAYROLL EXPENSES AND LIABILITIES GENERAL JOURNAL Date Account titles and explanation Debit Credit Date Account Titles and Explanation Debit Credit June 15 Office Salaries Expense Wages Expense CPP Payable EI Payable Income Tax Payable United Way Payable Union Dues Payable Salaries and Wages Payable To record payroll for the week ending June 15. 5,200.00 12,010.00 654.03 387.23 5,646.90 421.50 215.00 9,885.34 Academy Company records its payroll for the week ending June 15, 2002 with the journal entry above. Office Salaries Expense ($5,200) and Wages Payable ($12,010) are debited in total for $17,210 in gross earnings. Specific liability accounts are credited for the deductions made during the pay period. Salaries and Wages Payable is credited for $9,885.34 in net earnings.

RECORDING EMPLOYER PAYROLL COSTS GENERAL JOURNAL Date Account Titles and Explanation Debit Credit June 15 Employee Benefits Expense CPP Payable EI Payable Workers’ Compensation Payable Vacation Pay Payable To record employer payroll costs on June 15 payroll. 2,056.65 654.03 542.12 172.10 688.40 The entry to record the payroll costs associated with the Academy Company payroll results in a debit to Employee Benefits Expense for $2,056.65, a credit to CPP Payable for $654.03 ($654.03 x 1) and a credit to EI Payable for $542.12 ($387.23 x 1.4). Assuming a worker’s compensation rate of 1 percent, the comp-ensation payable liability would be for $172.10 ($17,210 x 1%). Vacation pay accrues at 4% and therefore the vacation payable will be 688.40 ($17,210 x 4%).