1. Payroll Accounting Making Accounting Relevant Businesses issue payroll checks to their employees to compensate them for work performed. Making Accounting Relevant Businesses issue payroll checks to their employees to compensate them for work performed. If you have a part-time job, what items appear on your pay stub? Do you verify that your gross earnings were properly calculated?

2. Section 1Calculating Gross Earnings What You’ll Learn  The importance of accurate payroll records.  How to calculate gross earnings. What You’ll Learn  The importance of accurate payroll records.  How to calculate gross earnings.

3. Why It’s Important For many businesses payroll is the largest expense. It is essential that the payroll system accurately determine the gross pay for each employee for every pay period. Why It’s Important For many businesses payroll is the largest expense. It is essential that the payroll system accurately determine the gross pay for each employee for every pay period. Section 1Calculating Gross Earnings (con’t.) Key Terms  payroll  pay period  payroll clerk  gross earnings  wage Key Terms  payroll  pay period  payroll clerk  gross earnings  wage  time card  electronic badge readers  commission  overtime rate  time card  electronic badge readers  commission  overtime rate

4. The Importance of Payroll Records Section 1Calculating Gross Earnings (con’t.)  The payroll is a list of the employees and the payments due to each employee for a specific pay period.  A pay period is the amount of time over which an employee is paid.  The payroll is a list of the employees and the payments due to each employee for a specific pay period.  A pay period is the amount of time over which an employee is paid.

5. The Importance of Payroll Records (con’t.) Section 1Calculating Gross Earnings (con’t.)

6. Calculating Gross Earnings The total amount of money an employee earns in a pay period is the employee’s gross earnings. An employee’s pay can be based on:  salary Section 1Calculating Gross Earnings (con’t.)  hourly wage  hourly wage  commission  salary plus commission or bonus  salary plus commission or bonus  overtime pay  overtime pay

7. Salary  A salary is a fixed amount of money paid to an employee for each pay period.  An employee who is paid a salary earns the same amount regardless of the number of hours worked during the pay period.  A salary is a fixed amount of money paid to an employee for each pay period.  An employee who is paid a salary earns the same amount regardless of the number of hours worked during the pay period. Section 1Calculating Gross Earnings (con’t.)

8. Hourly Wage  A wage is an amount of money paid to an employee at a specified rate per hour worked.  The number of hours worked multiplied by the hourly wage equals the gross earnings for the pay period.  A wage is an amount of money paid to an employee at a specified rate per hour worked.  The number of hours worked multiplied by the hourly wage equals the gross earnings for the pay period. Section 1Calculating Gross Earnings (con’t.)

9. Commission  A commission is an amount paid to an employee based on a percentage of the employee’s sales.  Some salespeople earn a base salary plus a commission or a bonus on the amount of their sales.  A commission is an amount paid to an employee based on a percentage of the employee’s sales.  Some salespeople earn a base salary plus a commission or a bonus on the amount of their sales. Section 1Calculating Gross Earnings (con’t.)

10. Overtime Pay  Employers are required to pay overtime when employees covered by these laws work more than 40 hours per week.  The overtime rate, set by the Fair Labor Standards Act of 1938, is 1½ (1.5) times the employee’s regular hourly pay rate.  Employers are required to pay overtime when employees covered by these laws work more than 40 hours per week.  The overtime rate, set by the Fair Labor Standards Act of 1938, is 1½ (1.5) times the employee’s regular hourly pay rate. Section 1Calculating Gross Earnings (con’t.)

11. Check Your Understanding List the two goals a payroll system should achieve. Section 1Calculating Gross Earnings (con’t.)

12. Section 2Payroll Deductions What You’ll Learn  Why deductions are calculated and reported.  How to calculate deductions required by the federal government.  How to determine voluntary deductions. What You’ll Learn  Why deductions are calculated and reported.  How to calculate deductions required by the federal government.  How to determine voluntary deductions.

13. Why It’s Important To prepare the payroll accurately and to comply with the law, both mandatory and voluntary deductions must be calculated correctly. Why It’s Important To prepare the payroll accurately and to comply with the law, both mandatory and voluntary deductions must be calculated correctly. Section 2Payroll Deductions (con’t.) Key Terms  deduction  allowance  401(k) plan Key Terms  deduction  allowance  401(k) plan

14. Determining Deductions from Gross Earnings  An amount that is subtracted from gross earnings is called a deduction.  Deductions include those required by law and those an employee wishes to have withheld from earnings.  An amount that is subtracted from gross earnings is called a deduction.  Deductions include those required by law and those an employee wishes to have withheld from earnings. Section 2Payroll Deductions (con’t.)

15. Deductions Required by Law  Federal Income Tax  Social Security Tax  State and Local Tax  Federal Income Tax  Social Security Tax  State and Local Tax Section 2Payroll Deductions (con’t.)

16. Federal Income Tax The amount withheld for federal income taxes depends on three factors: Federal Income Tax The amount withheld for federal income taxes depends on three factors:  the employee’s marital status  the number of allowances claimed by the employee  the employee’s gross earnings  the employee’s marital status  the number of allowances claimed by the employee  the employee’s gross earnings Section 2Payroll Deductions (con’t.)

17. Social Security Tax There are two FICA taxes: social security and Medicare. The tax rates are as follows: Social security tax6.20% Medicare tax1.45% Total FICA taxes7.65% (Deducted from each employee’s earnings until the maximum taxable earnings amount for the year is reached. This amount increases each year.) Social Security Tax There are two FICA taxes: social security and Medicare. The tax rates are as follows: Social security tax6.20% Medicare tax1.45% Total FICA taxes7.65% (Deducted from each employee’s earnings until the maximum taxable earnings amount for the year is reached. This amount increases each year.) Section 2Payroll Deductions (con’t.)

18. State and Local Income Taxes Section 2Payroll Deductions (con’t.)  In some states and cities, the tax rates are set as a percentage of gross earnings.  In others, the amounts to be deducted are indicated on tables similar to the ones used for federal income tax.  In some states and cities, the tax rates are set as a percentage of gross earnings.  In others, the amounts to be deducted are indicated on tables similar to the ones used for federal income tax.

19. Voluntary Deductions Common voluntary deductions include: Voluntary Deductions Common voluntary deductions include:  union dues  health insurance payments  life insurance payments  pension and other retirement contributions  credit union deposits and payments  U.S. savings bonds  charitable contributions  union dues  health insurance payments  life insurance payments  pension and other retirement contributions  credit union deposits and payments  U.S. savings bonds  charitable contributions Section 2Payroll Deductions (con’t.)

20. Check Your Understanding Which taxes are required to be withheld from employees’ pay? Section 2Payroll Deductions (con’t.)

21. Section 3Payroll Records What You’ll Learn  The purpose of a payroll register.  How to prepare a payroll register.  How to prepare a payroll check.  The purpose of an employee’s earnings record.  How to prepare an employee’s earnings record. What You’ll Learn  The purpose of a payroll register.  How to prepare a payroll register.  How to prepare a payroll check.  The purpose of an employee’s earnings record.  How to prepare an employee’s earnings record.

22. Why It’s Important To comply with federal and state laws, payroll records must be kept accurately. Why It’s Important To comply with federal and state laws, payroll records must be kept accurately. Section 3Payroll Records (con’t.) Key Terms  payroll register  net pay  direct deposit  employee’s earnings record  accumulated earnings Key Terms  payroll register  net pay  direct deposit  employee’s earnings record  accumulated earnings

23. Completing the Payroll Register The payroll register is a form that summarizes information about employees’ earnings for each pay period. Completing the Payroll Register The payroll register is a form that summarizes information about employees’ earnings for each pay period. Section 3Payroll Records (con’t.)

24. Preparing Payroll Checks The payroll register is the source of information for preparing the payroll checks. Preparing Payroll Checks The payroll register is the source of information for preparing the payroll checks. Section 3Payroll Records (con’t.)

25. The Employee’s Earnings Record An employer must keep an employee’s earnings record. This record contains all of the payroll information related to an employee. The Employee’s Earnings Record An employer must keep an employee’s earnings record. This record contains all of the payroll information related to an employee. Section 3Payroll Records (con’t.)

26. The Employee’s Earnings Record (con’t.) Section 3Payroll Records (con’t.) This amount was carried forward from the previous quarter’s record. This amount was carried forward from the previous quarter’s record. This amount will be carried forward to the next quarter’s record. This amount will be carried forward to the next quarter’s record.

27. Check Your Understanding What is the difference between a payroll register and an employee’s earnings record? Section 3Payroll Records (con’t.)