1. 0 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Unit 3 Accounting for a Payroll System Chapter 12Payroll Accounting Chapter 13Payroll Liabilities and Tax Records

2. 1 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 Payroll Accounting What You’ll Learn  Explain the importance of accurate payroll records.  Compute gross pay using different methods.  Explain and compute employee-paid withholdings.  Compute net pay.  Prepare payroll registers.  Explain the methods of distributing payroll funds.  Prepare an employee’s earnings record.  Define the accounting terms introduced in this chapter.

3. 2 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12, Section 1 Calculating Gross Earnings What Do You Think? What kinds of earnings might contribute to an employee’s gross earnings?

4. 3 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Gross earnings is the total amount an employee earns in a pay period. You Will Learn  the two main functions of a payroll system.  the different methods of computing gross pay. Calculating Gross Earnings SECTION 12.1

5. 4 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  payroll  pay period  payroll clerk  gross earnings  salary  wage  time card  electronic badge readers  commission  piece rate  overtime rate Calculating Gross Earnings SECTION 12.1

6. 5 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.payrollpay periodpayroll 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

7. 6 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:gross earnings  salary  hourly wage  commission  salary plus commission or bonus  piece rate Calculating Gross Earnings SECTION 12.1

8. 7 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.salary Calculating Gross Earnings SECTION 12.1

9. 8 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.wagetime card Some businesses use electronic badge readers to track employees’ work hours.electronic badge readers Calculating Gross Earnings SECTION 12.1

10. 9 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.commission Calculating Gross Earnings SECTION 12.1

11. 10 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

12. 11 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.piece rate Calculating Gross Earnings SECTION 12.1

13. 12 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. overtime rate Calculating Gross Earnings SECTION 12.1

14. 13 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  payroll A list of the employees and the payments due to each employee for a specific pay period.  pay period The amount of time over which an employee is paid.  payroll clerk An employee responsible for preparing the payroll.  gross earnings The total amount of money an employee earns in a pay period; also called gross pay. Calculating Gross Earnings SECTION 12.1

15. 14 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  salary A fixed amount of money paid to an employee for each pay period.  wage An amount of money paid to an employee at a specified rate per hour worked.  time card A record of the time an employee arrives at work, leaves work, and the total number of hours worked each day. Calculating Gross Earnings SECTION 12.1

16. 15 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  electronic badge readers An electronic device that scans the magnetic strip containing employee information on an employee’s identification badge and then transfers the information directly to a computer.  commission An amount paid to an employee based on a percentage of the employee’s sales.  piece rate A rate of pay based on the number of items produced. Calculating Gross Earnings SECTION 12.1

17. 16 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  overtime rate Pay rate employers are required to pay certain employees covered by state and federal laws; the Fair Labor Standards Act of 1938 sets the rate at 1.5 times the regular hourly rate after 40 hours per week. Calculating Gross Earnings SECTION 12.1

18. 17 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12, Section 2 Payroll Deductions What Do You Think? What is the purpose of having your employer withhold amounts from your paycheck?

19. 18 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Payroll deductions are amounts withheld from an employee’s gross earnings. You Will Learn  the deductions required by law.  the deductions an employee can choose. Payroll Deductions SECTION 12.2

20. 19 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  deduction  withholding allowance  401(k) plan Payroll Deductions SECTION 12.2

21. 20 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. deduction 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

22. 21 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

23. 22 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.withholding allowance Some employees are exempt from tax withholding. Payroll Deductions SECTION 12.2

24. 23 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Form W-4 Payroll Deductions SECTION 12.2

25. 24 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

26. 25 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

27. 26 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

28. 27 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

29. 28 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.401(k) plan Payroll Deductions SECTION 12.2

30. 29 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  deduction An amount that is subtracted from an employee’s gross earnings.  withholding allowance An allowance an individual claims on a Form W-4; it is used to calculate the amount of income tax withheld from an employee’s paycheck.  401(k) plan A voluntary payroll deduction from gross earnings; the employee does not pay income tax on the amount contributed until the money is withdrawn from the plan, usually after age 59 ½. Payroll Deductions SECTION 12.2

31. 30 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12, Section 3 Payroll Records What Do You Think? What might happen if a company did not keep accurate records of payroll?

32. 31 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Businesses must keep accurate payroll records to comply with federal and state laws. You Will Learn  what a payroll register is and how to prepare one.  how employees receive their pay.  how to maintain employees’ earnings records.  how owners and managers use payroll information to make decisions. Payroll Records SECTION 12.3

33. 32 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  payroll register  net pay  direct deposit  employee’s earnings record  accumulated earnings Payroll Records SECTION 12.3

34. 33 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:payroll register 1. Total Hours Column 2. Rate Column 3. Earnings Section 4. Deductions Section 5. Net Pay ColumnNet Pay 6. Check Number Column 7. Column Totals Payroll Records SECTION 12.3

35. 34 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

36. 35 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). direct deposit Payroll Records SECTION 12.3

37. 36 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.employee’s earnings record accumulated earnings Many companies use computers and special software to prepare payroll to reduce errors and improve productivity. Payroll Records SECTION 12.3

38. 37 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

39. 38 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  payroll register A form that summarizes information about employees’ earnings for each pay period.  net pay The amount left after total deductions have been subtracted from gross earnings.  direct deposit Depositing net pay directly into an employee’s personal bank account through electronic funds transfer. Payroll Records SECTION 12.3

40. 39 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  employee’s earnings record A record prepared for each employee that contains all payroll information related to the employee; it is kept on a quarterly basis.  accumulated earnings The employee’s year-to-date gross earnings. Payroll Records SECTION 12.3

41. 40 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 1 Wayne Hanson is paid $9 per hour. He worked 44 hours last week. In addition, he receives time and one-half for overtime. Calculate his gross pay for the week. Chapter 12 Review CHAPTER 12

42. 41 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 1 Step 1:Multiply his regular pay by the number of hours worked ($9.00  40 = $360.00). Step 2:Calculate the overtime rate by multiplying the regular hourly wage by 1.5 ($9.00  1.5 = $13.50). Step 3:Multiply the number of overtime hours by the overtime rate(44 - 40 = 4 hours of overtime; 4  $13.50 = $54.00). Step 4:Add the regular pay and the overtime pay ($360.00 + $54.00 = $414.00). Chapter 12 Review CHAPTER 12

43. 42 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 2 What are at least three pieces of information you can learn from your weekly payroll check? Chapter 12 Review CHAPTER 12

44. 43 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 2 Among the important facts you can find from your weekly payroll check are these: 1.The time period in which the work was performed. 2.The total number of regular hours. 3.The total number of overtime hours. 4.Total gross pay. 5.Amount of Medicare tax withheld. 6.Amount of social security tax withheld. 7.Amount of federal income tax withheld. 8.Amount of state income tax withheld. 9.Any voluntary deductions withheld. 10. Total net pay. Chapter 12 Review CHAPTER 12

45. 44 Glencoe Accounting Unit 3 Chapter 12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Resources Glencoe Accounting Online Learning Center English Glossary Spanish Glossary