Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Module 10 Payroll Liabilities

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Payroll Accounting Many agencies depend heavily on their employees to accomplish their goals an their mission For some agencies, payroll represents the largest monthly expense. Payroll Accounting is responsible for: –Recording cash payments made to employees –Providing information about labour costs For many agencies, labour cost is their most consistent and costly expense –Accounting for amounts withheld from employee pay –Accounting for employee benefits –Providing means through which employers can comply with government regulations regarding employee compensation

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Payroll Deductions Payroll deductions are amounts withheld from the wages of employees –note: amounts are withheld from wages actually paid The amount withheld is determined by –their wage amount –The amount of personal tax credits A look-up table is supplied by CCRA to help agencies/employers calculate the amount to be withheld based on the above Agencies remit withholdings monthly The amount of personal tax credits is determined when the employee completes their TD1 form –A TD1 form is usually completed by an employee within the first few days of starting work with the agency.

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Canada Pension Plan (ignore QPP) Every working person between ages 18 and 70 must pay CPP –The deduction is based on a percentage of wages to a maximum amount ($39900) –The agency matches 100% the employee contribution and remits both –Self-employed individuals must make the remittance for both the employee and agency An easy way to calculate CPP –Determine the amount of pay (in terms of weeks or months) –Determine exemption amount If paid in weeks, take $3500 / 52 weeks = $67.31 / week exemption If paid in months, take $3500 / 12 months = $ / month exemption –CPP Deduction = (the weekly or monthly pay - exemption) *.0495 –Employer contribution = Employee CPP deduction

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Employment Insurance EI coverage is extended to all Canadians who are not self- employed –Employers must deduct and amount based on a percentage of gross income to a maximum amount ($39000). –Employers must pay an amount 1.4 times that of the employees’ amount and remit the combined amount. An easy way to calculate EI deductions –Determine the amount of pay –EI Deduction =.021 * amount of pay –Employer contribution = Employee contribution * 1.4

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Income Tax Income taxes vary by province due to the provincial amount Easiest way to calculate Income Tax is to use look-up tables –Determine how the employees are paid (monthly or weekly) –Determine the individual employees’ TD1 Claim Code –Ensure you are using the right look-up tables There are look-up tables for monthly or weekly amounts – choose the right one –Look up the federal amount for the proper TD1 Claim Code –Look up the provincial amount for the proper TD1 Claim Code –Add ‘em up, Income Tax Deduction = Fed Amount + Prov Amount –There is no employer contribution for tax. They pay their own taxes.

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Withholding Tables Wage bracket withholding tables make the calculation to determine amounts to be withheld for CCP (or QPP) and EI easy for employers. –The tables can be downloaded from a government website. –These tables are also available in electronic format so payroll and accounting software applications can use them. –These tables are updated on (usually) a semi-annual basis. –The tables use gross pay (regular + overtime) as the look-up amount –The income tax deduction amounts are based on gross pay less amounts deducted for CPP and EI In effect we are not taxed on amounts paid to CPP and EI This is done for you if you use the tax tables

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP T4 Form The T4 Statement is the report that agencies provide to CCRA and to employees that summarizes their gross wages and source deductions It usually includes –Total Gross Wages –Taxable benefits received from employers –Income taxes withheld –Deductions for a registered pension –CPP contributions –EI deductions

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP The Payroll Register Payroll Register is a simple table that summarizes the pay given to the employees each pay It contains the following by employee name: –Hours worked (or salary earned) –Overtime (OT) hours if applicable –Calculates gross pay based on regular time and over time –Outlines amounts deducted for CPP, EI, and Tax –Shows net pay

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Recording the Journal Entries EI Payable, Income Tax Payable, CPP Payable and EI Payable are current liabilities the employer is responsible for Salaries Payable is what is owed to employees on the next pay Other deductions might be employee contributions to a health plan DateAccount Titles and explanationPRDebitCredit July 31Salaries Expense20000 EI Payable550 Employees’ Income Tax Payable3550 CPP Payable1400 Salaries Payable13500 Other deductions Payable1000

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP Recording the Journal Entries When actually paying the employees, the journal entry becomes When paying out EI, CPP and Taxes, the journal entry is: DateAccount Titles and explanationPRDebitCredit July 31Salaries Payable13500 Cash13500 DateAccount Titles and explanationPRDebitCredit July 31EI Payable550 Employees’ Income Tax Payable3550 CPP Payable1400 Cash5500

Financial Accounting Dave Ludwick, P.Eng, MBA, PMP The Employer Side For both CPP and EI, employers must supplement the amount paid by employees. –The amounts contributed by employers are remitted at the same time as those for employees and so are usually held in the same payables and expense accounts –These amounts are considered payroll related expenses and are recorded as EI or CPP Expenses