1. Preparing Payroll Records
CHAPTER 13
Preparing Payroll Records

2. Define accounting terms related to payroll records
OBJECTIVES:
Define accounting terms related to payroll records
Identify accounting practices related to payroll records
Complete a payroll time card
Calculate payroll taxes
Complete payroll register and an employee earnings record
Prepare payroll checks

3. Ways Employees Are Paid
Salary - $ per week, month, or year
Wages - $ per hour
Pay Period - How often an employee is paid - usually bi-weekly, can be weekly, bi-monthly, or monthly
Payroll - The total amount earned by all employees for a pay period
Overtime Pay: increased pay for extra hours worked, either 8+ hours per day or 40+ hours per week
Usually not eligible if salaried
Payroll time cards:
Record the time employees work
Time is recorded to nearest quarter hour

4. CH 13-1: Preparing Payroll Time Cards
Must keep special payroll records to support the recording of payroll transactions in a journal:
Employee earnings record – individual
Payroll register – all employees
Records are used:
To inform employees of their annual earnings
For business to prepare payroll records for government

5. ANALYZING A PAYROLL TIME CARD
Lesson 13-1 (GJ)
ANALYZING A PAYROLL TIME CARD

6. CALCULATING EMPLOYEE HOURS WORKED
1. Calculate regular hours.
2. Calculate overtime hours.
3. Add Hours Reg and Hours OT columns and enter totals.
4. Add Hours column. 1 2
**Round times to nearest quarter hour 3
Lesson 13-1, page 313 4

7. Gross Pay (total before deductions) = Hours X Rate
Employee A worked 40 hours and was paid $8.00 an hour.
40 x 8 = $ Gross Pay
Employee B worked 40 regular hours and 2 overtime hours at $8.00 an hour.
40 x 8 = $ Regular
2 x 12 = Overtime (OT = $8 x 1.5 = $12)
$ Gross Pay
Net Pay = Gross Pay – Deductions

8. CALCULATING EMPLOYEE TOTAL EARNINGS
1. Enter the rate for regular time.
2. Calculate regular earnings.
Reg hours * Reg rate
3. Enter the rate for overtime.
4. Calculate overtime earnings.
OT hours * OT Rate
5. Calculate Total Earnings.
***AKA***
Gross Pay or Gross Earnings 1 2 3 4 5
Lesson 13-1, page 314

9. TERMS REVIEW salary pay period payroll total earnings TO DO:
Work Together, pg 315
On your own, pg 315

10. CHAPTER 13-2: Determining Payroll Tax Withholdings
Payroll taxes: taxes based on payroll of the business
Business is required by law to withhold certain payroll taxes from employee salaries
All are based on employee total earnings must keep accurate and detailed records
Errors incorrect tax payments state and federal government penalties
Liability for the employer until paid to government

11. Employer must keep payroll records for: Federal Government
Employee Income Tax:
Must withhold federal income taxes from total earnings
Forwarded periodically to federal government
Many states also require state income taxes withheld
Employer must keep payroll records for:
Federal Government
State Government
County Government
Local Government

12. Form W-4: Employee’s Withholding Allowance Certificate
Withholding allowance: deduction from total earnings for each person legally supported by tax payer, including employee
Must be filled out by every employee kept current
Determines amount employer withholds from the employee’s pay check.

13. Five Filing Statuses – to determine amount of tax withheld
Single
Married
Married Filing Separately
Widow/Widower
Head of Household

14. ITEM 7 on W-4
Claiming Exemption from Withholding for certain low-income, part-time employees
Employer would not withhold income tax because you would owe none at the end of the year.
Must STILL fill out W-4
TO qualify:
Cannot earn over $700
Cannot have earned any interest or dividends
Cannot be claimed by another person
International student / foreign employee from temporary visa

15. EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE
Lesson 13-1 (GJ)
EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE 2 1 3 4 5
1. Name and Address
4. Withholding Allowances
2. Social Security Number
5. Signature and Date
3. Marital Status

16. EMPLOYEE’S INCOME TAX WITHHOLDING—SINGLE PERSONS

17. EMPLOYEE’S INCOME TAX WITHHOLDING—MARRIED PERSONS
Selby:
Married $ 4
At least But Less than
1,120 1,140 63
Lesson 13-2, page 319

18. Payroll Taxes Paid by Employee
FICA (Federal Insurance Contributions Act)
Social Security 6.5% (old-age, survivors, disability)
Medicare 1.5% (hospital insurance)
Total 8% (paid by both employee AND employer)
Tax Base for 1997 is $65,400 (used for book)
$97,500
$102,000
Medicare – proportional at all levels (no tax base)
Federal Income Tax
Rates are from 15% to 38.6 %
Amount Paid depends on:
Exemptions claimed
Filing Status
Gross Pay
State Income Tax - PA 2.8%
Local Income Tax – Upper Saucon 1% - Lower Saucon 2%

19. Social Security and Medicare - Same rate as employee
Taxes Paid by Employer
Social Security and Medicare - Same rate as employee
Federal Unemployment – 0.8% (first $7000)
State Unemployment – 5.4% (first $7000)
(more details later)

20. EMPLOYEE SOCIAL SECURITY AND MEDICARE TAX   
Calculate Social Security Tax Deduction
Total Social Security Social Security
Earnings  Tax Rate = Tax Deduction
$1,  6.5% = $73.91    
Calculate Medicare Tax Deduction
Total Medicare Medicare
Earnings  Tax Rate = Tax Deduction
$1,  1.5% = $17.06

21. TERMS REVIEW *************************** TO DO: Work Together, 321
payroll taxes
withholding allowance
social security tax
Medicare tax
tax base
***************************
TO DO:
Work Together, 321
On your own, 321
Application Problems 13-1, 13-2, pg 331

22. Chapter 13-3: Preparing Payroll Records
Payroll Register: Summarizes Gross & Net Pay and deductions for all employees for 1 payroll period.
Remember: Partners are not employees and are not paid salaries – how are they paid????
*****Payroll is an expense of the business*****

23. PAYROLL REGISTER 1. Pay Period Date 8. Health Insurance
Lesson 13-1 (GJ)
PAYROLL REGISTER 1 2 11 13 4 5 6 7 8 9 10 3 12
1. Pay Period Date
8. Health Insurance
2. Payment Date
9. Other Deductions
3. Employee Personal Data
10. Total Deductions
4. Earnings
11. Net Pay
5. Federal Income Tax
12. Total, Prove, and Rule
6. Social Security Tax
13. Check Number
7. Medicare Tax

24. Voluntary/Other Deductions – Column 8
Union dues - U
Savings /Retirement – S or R
Insurance – Life - L
United Way - UW
US Savings Bonds - B
Company Stock options
Health, Travel fund, etc.
Anything employer and employee agree upon.

25. Employee Earnings Record
Business form used to record details affecting payments made to each employee
New record prepared each quarter for each employee
Info needed to prepare it is taken from the payroll register
Must send quarterly reports to government agencies showing:
Employee taxable earnings
Taxes withheld

26. EMPLOYEE EARNINGS RECORDS5
5. Earnings, Deductions, Net Pay
1. Last day of Quarter 1
2. Employee Personal Data
3. Beginning Accumulated Earnings 2 3
4. Pay Period 4 6 7
6. Updated Accumulated Earnings = Acc. Earnings + TOTAL earnings
Lesson 13-3, page 324
7. Total and Prove

27. TERMS REVIEW payroll register net pay employee earnings record TO DO:
Work Together, pg 326
On your own, pg 326
Lesson 13-3, page 326

28. Chapter 13-4: Preparing Payroll Checks
A separate checking account is set up for payroll.
One check is made out for the TOTAL net wages and deposited into the payroll checking account.
Then individual checks are made to each employee from this account.
Helps to protect and control payroll payments
INFO is taken from payroll register

29. PAYROLL BANK ACCOUNT 1 2 1. Prepare the check stub.
Lesson 13-1 (GJ)
PAYROLL BANK ACCOUNT 1
1. Prepare the check stub. 2
2. Prepare the check.
Lesson 13-4, page 327

30. Voucher check
This is a check with a description of the attached check.
An employer must give an employee a voucher check for his wages.
It must show gross pay (regular and overtime), deductions, and net pay.
Employee's Earnings Record:
This is a record of one employee’s pay for the entire quarter.

31. EMPLOYEE’S PAYROLL CHECK1
1. Enter on check stub information from payroll register. 2
2. Prepare employee’s payroll check for net amount of earnings.
Lesson 13-4, page 328

32. Automatic Check Deposit
The employee authorizes the employer to deposit his payroll check into a particular checking or savings account.
EFT: Electronic Fund Transfer
A check is never made out; it is a computer transaction.
The employee receives a check stub with payroll information.

33. TO DO:
Work Together, pg 329
On your own, pg 329
Application Problems 13-3, 13-4, pg