Chapter 12 Payroll Accounting Section 12-2 Payroll Deductions Section 12-3 Payroll Records

The collection and processing of information needed to begin to prepare and issue payroll checks. Gross earnings is the total amount an employee earns in a pay period. A deduction is an amount that is subtracted from an employee’s gross earnings. Net pay is the total amount that the employee actually receives (gross earnings less deductions). Section skills

Problem 12-5 (page 333) practice 39 39 7.35 286.65 40 3 43 7.60 338.20 185.00 37.05 222.05 250.00 22.80 272.80 Ann Ryan practice

Mandatory deductions – deductions required by law Voluntary deduction – deductions that are optional deductions

Deductions Required by Law Social Security Tax City and State Income Tax Federal Income Tax Mandatory deductions

mandatory deductions The amount of income tax withheld depends on: The employee’s marital status (found on Form W-4) The amount of income tax withheld depends on: Number of allowances claimed (found on Form W-4) The employee’s gross earnings mandatory deductions

withholding allowance - An allowance an individual claims on a Form W-4; it is used to calculate the amount of income tax withheld from an employee’s paycheck. Mandatory deductions See page 319

Look at the Tax Tables shown on page 320 Separate tables for Single and Married Different tables for pay periods Reading the tables mandatory deductions

Refund Amount Due Mandatory deductions Too much money withheld from the IRS Employer withholds federal income tax Too little money withheld Amount Due to the IRS State/Local Income tax is similar – employer is required to withhold and forward to the government Mandatory deductions

The Federal Insurance Contributions Act (FICA) established social security taxes in 1935. Two components of FICA are: Social Security–provided as old age and disability insurance and survivors’ benefits Medicare–provides health insurance for people who are elderly or disabled Currently 6.2% Currently 1.45% Social Security has an annual maximum; currently the maximum taxable earnings amount is $106,800. mandatory deductions

Examples of Voluntary Deductions Union Dues Health Insurance Premiums Life Insurance Premiums Retirement Contributions (401k, etc.) Credit Union Deposits and Payments U.S. Savings Bonds Charitable Contributions voluntary deductions

Problem 12-2 (page 322) practice 9.65 2.26 16.00 3.11 31.02 124.58 11.41 2.67 12.00 3.68 29.77 154.33 12.69 2.97 23.00 4.09 42.75 161.90 13.42 3.14 6.00 4.33 26.88 189.52 12.20 2.85 3.94 18.99 177.82 957.56 59.37 13.88 57.00 19.55 149.40 808.16 6.2% 1.45% Page 320 2% Double-check by taking the gross total minus total deductions to make sure it equals the net total. practice

Paying Employees Two most common methods: Paper Check Direct Deposit Payroll records

payroll register - A form that summarizes information about employees’ earnings for each pay period. Total Hours Column Rate Column Earnings Section Deductions Section Net Pay Column Check Number Column Column Totals See page 323 Payroll records

accumulated earnings - the employee’s year-to-date gross earnings An employer must also keep an employee’s earning record, which includes accumulated earnings information. employee’s earning record – a record prepared for each employee that contains all payroll information related to the employee; it is kept on a quarterly basis accumulated earnings - the employee’s year-to-date gross earnings Payroll records

Problem 12-6 (pages 333-334) Problem 12-7 (page 334) Excel – template Compare with group Problem 12-7 (page 334) Handout assignment