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0 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using a Payroll System A payroll is a list of.

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Presentation on theme: "0 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using a Payroll System A payroll is a list of."— Presentation transcript:

1 0 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using a Payroll System A payroll is a list of employees and payments due to each employee for a specific pay period. Businesses with many employees can have a payroll clerk. A well-designed payroll system achieves the following goals:  The collection and processing of all information needed to prepare and issue payroll checks.  The generation of payroll records needed for accounting purposes and for reporting to government agencies, management, and others. Calculating Gross Earnings SECTION 12.1

2 1 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Computing Gross Pay The amount of money an employee earns in a pay period is called gross earnings, or gross pay. Employees are grouped into different pay categories to help the employer compute the gross pay:  salary  hourly wage  commission  salary plus commission or bonus  piece rate Calculating Gross Earnings SECTION 12.1

3 2 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Salary A common method of paying employees is by salary, a fixed amount of money paid each pay period regardless of the number of hours worked. Calculating Gross Earnings SECTION 12.1

4 3 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Hourly Wage Another common method of paying employees is the hourly wage, an amount of money paid at a specified rate per hour worked. Employees are sometimes required to use a time card to record hours worked. Some businesses use electronic badge readers to track employees’ work hours. Calculating Gross Earnings SECTION 12.1

5 4 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Commission Sales employees are often paid a commission, a percentage of the employee’s sales. Calculating Gross Earnings SECTION 12.1

6 5 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Salary Plus Commission or Bonus Some sales employees are paid a base salary plus a commission or bonus based on their sales. Calculating Gross Earnings SECTION 12.1

7 6 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Piece Rate Employees receive piece rate when they are paid for each item they produce. Calculating Gross Earnings SECTION 12.1

8 7 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Overtime Pay Employers are generally required to pay overtime when employees work more than 40 hours per week. The overtime rate, as set by the Fair Labor Standards Act of 1938, is 1.5 times the employee’s regular pay rate. Salaried employees are sometimes entitled to overtime pay as well. Calculating Gross Earnings SECTION 12.1

9 8 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Deductions Required by Law An amount subtracted from gross earnings is a deduction. Deductions include those required by law and those an employee wishes to have withheld. An employer is required by law to withhold payroll taxes. These taxes include:  Federal income tax  Social security tax  City and state income tax Payroll Deductions SECTION 12.2

10 9 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Deductions Required by Law Federal Income Tax Employers withhold income tax based on the estimated income tax the employee will owe. If too much is withheld the Internal Revenue Service (IRS) refunds the overpayment. Payroll Deductions SECTION 12.2

11 10 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Form W-4 The amount of income tax withheld depends on:  the employee’s marital status  the number of allowances the employee claims  the employee’s gross earnings The first two items are found on the employee’s Form W-4 (Employee’s Withholding Allowance Certificate). A withholding allowance reduces the amount of income tax withheld. Some employees are exempt from tax withholding. Payroll Deductions SECTION 12.2

12 11 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Form W-4 Payroll Deductions SECTION 12.2

13 12 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Tax Tables IRS tables can be used to determine the amount of federal tax to withhold. There are many tax tables available. Payroll Deductions SECTION 12.2

14 13 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Deductions Required by Law Social Security Tax Social security taxes are also collected by employers. The Federal Insurance Contributions Act (FICA) established social security taxes in 1935. FICA taxes have two components:  social security–provided as old age and disability insurance and survivors’ benefits  Medicare–provides health insurance for people who are elderly or disabled Payroll Deductions SECTION 12.2

15 14 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Deductions Required by Law State and Local Income Taxes Many states and some cities tax earnings of people who live or work within their boundaries. Payroll Deductions SECTION 12.2

16 15 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Voluntary Deductions Employers can also deduct voluntary amounts from their employee’s check at the employee’s request. These types of deductions can include:  union dues  health insurance payments  life insurance payments  U.S. savings bonds  charitable contributions  pensions  credit union deposits and payments Payroll Deductions SECTION 12.2

17 16 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Voluntary Deductions The 401(k) plan is a popular voluntary payroll deduction that allows employees to save tax-free dollars for retirement. Payroll Deductions SECTION 12.2

18 17 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Preparing the Payroll Register A payroll register helps employers keep accurate payroll records. Payroll registers consist of seven parts: 1. Total Hours Column 2. Rate Column 3. Earnings Section 4. Deductions Section 5. Net Pay Column 6. Check Number Column 7. Column Totals Payroll Records SECTION 12.3

19 18 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Preparing the Payroll Register Payroll Records SECTION 12.3

20 19 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Paying Employees Small businesses write payroll checks straight from the company’s regular checking account. Large businesses have a separate payroll checking account to issue payroll checks. Employees can be paid by check or by direct deposit (net pay is electronically deposited in the employee’s personal bank account). Payroll Records SECTION 12.3

21 20 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Employee’s Earning Record An employer must also keep an employee’s earnings record. The earnings record and the payroll register have the same amount columns. In addition, it has the accumulated earnings column, an employee’s year-to- date gross earnings. Many companies use computers and special software to prepare payroll to reduce errors and improve productivity. Payroll Records SECTION 12.3

22 21 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Managerial Implications for Payroll Accounting Because wages and salaries are a large part of a company’s expenses, accurate payroll records are important. Payroll records can be used  to determine if overtime is justified, and  to compare actual amounts to budgeted amounts to reveal unplanned overtime. Payroll Records SECTION 12.3


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