2 Terms to KnowSalary - Specific amount paid per month or per year (usually has a contract)Wages – Based on a rate per hour or piecework.Payroll – Pay and benefits paid to employeesGross Earnings – Wages/Salary before any deductions.Bonus – Amount paid over and above salary/wages
3 Terms to KnowDeductions – Amount deducted from gross pay. (Also known as withholding)Income Taxes – Amount paid to government(state, city and federal)FICA – Federal Insurance Contribution Act (amount paid by employee and employer) (Divided intro Social Security and Medicare)Employer – Owner of businessEmployee – Person working for a businessEmployee Earnings Record - An individual summary of pay and deductions for a year.
4 Terms to KnowFederal Unemployment Taxes – Paid by employer for laid off workers.State Unemployment Taxes – Paid by employer to state for laid off workers.W2 – Statement sent to employee which records pay and deductions for a year.Payroll Tax Expense – Journal Entry to record payroll taxes due the state/federal government.Salary Expense – Payroll paid to employees and record of deductions.Payroll Register – A record that has all information for the payroll in a single form.
5 Terms to Know Semi-Monthly – Paid twice a month (24 pay periods) Bi-Weekly – Paid every two weeks (26 pay periods)
6 Step 1 Determine the Amount of Pay Wages per hourHours x rate = gross pay(40 hours x $7 = $280)Overtime hours (usually 1-1/2)2 hours x (7 x1.5) = $21.00- Total Gross pay $ = $301.00
7 You DecideEleanor works at COSCO, she earns $8.50/hr. She worked 8 hours each day for five days and worked 3 hours overtime on Friday. Compute her gross pay.
8 Deductions Federal Income Tax Determined by gross pay and allowances claimed on your W-4.Let’s look at Page 460Michael Jordon made $516 for the week and claims 2 allowances, what is his Federal Income Tax deduction.
9 State and Local TaxesStates have different rates they deduct from employees pay (Let’s say Michigan is 5%)Certain cities also have income taxes (Let’s say Detroit is 1%)These percentages are computed on the gross payLet’s determine Michael’s Federal and Local Taxes that will be deducted.
10 FICA/Medicare TaxesThe Federal Government also deducts FICA/Medicare TaxesThese taxes are used for social security (retired people) and for Medicare and Medicaid recipients.In 2008, the rate is 7.65% (6.2% for social security and 1.45% for Medicate) for the first $100,000 of wages.Let’s determine Michael’s deductions for FICA taxes.
11 Other DeductionsThere are several other deductions that can be taken from someone’s pay.Examples:Health Insurance PremiumsVision Insurance PremiumsDental Insurance PremiumsLoan PaymentsSavings/Credit UnionGarnishmentsUnion DuesAlimony/Child Support Payments
12 Michael’s DeductionsMichael has the following deductions from his weekly payHealth Insurance $70.00Savings $50.00Union Dues $20.00
13 Net Pay The pay you bring home is gross pay – deductions. Determine what is Michael’s take-home pay.Let’s do anotherPage 516 (E11-10)And anotherPage 516(E11-11)
14 Recording the Payroll Now the employer records everything Employee Earnings Record (Page 499)Payroll Register (Page 499)Journal Entry for Payroll (Page 500)Record the Payment (Page 500)Generate Checks and Check Stubs
15 Employer TaxesEmployer must also pay the same percentage for FICA taxes as the employee.Employer also pays State Unemployment Taxes and Federal Unemployment Taxes.Employer may also pay a pension payment for their employees.
16 Computation of Employer Taxes FICA (Same rate as employee)State Unemployment (5.4% on first $7,000 earned) (Called SUTA)Federal Unemployment (.8% on first $7,000 earned) (FUTA)There is a credit for paying State Unemployment Taxes on time.
17 Entry Employer Tax Expense FICA Tax Pay Fed. Unempl Tax Payable State Unempl Tax Payable(Record Employer Taxes)
18 Paying Employer TaxesWhat do you think would be the entry when the company pays the SUTA and FUTA taxes?
19 Journalize the Payroll Taxes Example on Page 503Let’s tryPage 517 E11-14MorePage 517 E11-12