7-1

Unit 7 Employee Earnings Records McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-3 Earnings Records Format The Employee Earnings Record contains: payroll history of each employee. personal information –address –social security number, –marital status –employee withholding allowances Pay rate and rate increases Job title Voluntary deductions Date of termination Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-4 Earnings Records Format Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-5 Earnings Records Format Changes in the employee records –Changes in allowances: Need a signed W-4, ten days after the effective date of the change. –Changes in pay/title Required written authorization from manager/supervisor –Changes in Voluntary Deductions Only with written authorization form signed by the employee Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-6 Earnings Records Format The heading is divided into six vertical sections –the ending date of the payroll period, –hours worked, –earnings, –deductions, –net pay, –and year-to-date earnings during the four quarters of the year. A single horizontal line is used to record information for each employee for a payroll period. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-7 Earnings Records Format Government and Employee’s Earnings Records –The employee earnings record also has space for entering total amounts for each quarter and for the year as a whole. –Federal government forms that need quarterly and annual records are: W-2 forms 1099 forms 940 (FUTA) 941 (FICA) Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-8 Earnings Records Format Government and Employee’s Earnings Records –quarterly and yearly figures are needed for various state tax reports. State unemployment State Disability Insurance Workers compensation insurance –These reports are to be retain by the employers for at least 3 years. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-9 Earnings Records Entries Payroll Register: –provides the information entered in the employee earnings records at the end of each payroll period: hours worked, earnings, deductions, and net pay. –These items are transferred from the payroll register to the individual earnings records. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-10 Earnings Records Entries Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-11 Near Maximum Taxes Social Security Taxes (2005): –Taxable base is the first $87,900. –After the base social security tax is no longer withheld from the gross earnings or matched by the employer. Medicare Taxes (2005): – No taxable base ( all earnings are taxable). Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-12 Near Maximum Taxes There are also state taxes that have maximum amounts of taxable earnings. –Example: California State Disability Insurance Tax maximum earnings is $68,829 ( 2004). – Once a worker earns more than that amount, the SDI tax is no longer deducted from gross earnings. Unemployment tax: –Only the first $7,000 of each employee’s earnings is taxable –Once an employee passes $7,000 in a year, no further unemployment tax is due for that employee that year. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-13 Using Employee Earnings Records Employee earnings records serve the following important purposes: –provides information needed for payroll reports –Provides information for Federal, state and local tax returns –provides information needed for income tax withholdings, –provides information needed for Social Security and Medicare withholdings –Management reports –Helps determine when employees reach the taxable wage base for each Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-14 Using Employee Earnings Records They provide the information about their earnings, deductions and net pay. Serve as reference to verify information such: –employee’s contact information, –job title, –date employed Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-15 Care in Making Entries Although the process of making entries in the employee earnings record is not difficult, it must be done carefully and accurately. Errors can easily occur. –Examples: writing an amount in the wrong column, Transposing figures, and placing information in the wrong earnings record. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-16 Internal Controls These controls are designed to ensure: –accuracy, –honesty, –efficiency, –and confidentiality. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-17 Internal Controls Internal controls for payroll: –Limit access to payroll records to authorized personnel. –locked files –records password protected records –set up and enforced confidentiality rules –No new additions without written authorization from the appropriate manager. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-18 Internal Controls Internal controls for payroll: –manager’s written approval for changes in job titles or rate of pay –Employee written authorization for: changes in marital status, withholding allowances, and/or voluntary deductions Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-19 INTERNAL CONTROLS Internal controls for payroll (cont.): –Independent internal or external auditor for payroll records –Separation of duties: payroll checking account should not be reconciled by the same person who writes the payroll checks. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-20 Unit Summary Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7-21 Questions? Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.