C HAPTER 5 P AYROLL A CCOUNTING Accounting and Finance for Entrepreneurs EBD -301 All Rights Reserved1Dr. David P Echevarria

P AYROLL A CCOUNTING If you have employees – you have payroll responsibilities IRS regulations are quite specific when it comes to payroll taxes and their timely remission The need to maintain absolutely accurate records is essential All Rights Reserved2Dr. David P Echevarria

P AYROLL A CCOUNTING Bookkeeping Requirements Journal Accounts Wage and Salary Expense (when paid) Accrued Wages and Salaries Payable (when owed but not yet paid) Payroll taxes Payable (when taxes have not been remitted) Income Taxes Payable (Federal, State, Local) All Rights Reserved3Dr. David P Echevarria

P AYROLL A CCOUNTING Payroll withholdings Employee portion of Social Security tax Employee portion of Medicare tax Federal income tax State income tax Court-ordered withholdings Other withholdings All Rights Reserved4Dr. David P Echevarria

Payroll Cost Accounts All Rights Reserved5Dr. David P Echevarria

Mandated Taxes on Income Social Security FICA Tax (employer match) 2014: 6.2% of first $117,000 Medicare Tax (employer match) 2014: 1.45% on all income Plus 0.9% surtax on certain incomes) Federal Income Tax (importance of W-4 form) Rate of taxation a function of status State and Local Taxes Typically a flat rate All Rights Reserved6Dr. David P Echevarria

Other Withholdings Court Ordered Judgments Garnishment of wages to pay fines, etc. Miscellaneous Withholdings Union dues Insurance premiums Retirement fund contributions Charitable contributions All Rights Reserved7Dr. David P Echevarria

Employer Payroll Related Expense Employer portion of Social Security tax Employer portion of Medicare tax State unemployment tax Federal unemployment tax Worker compensation insurance Employer portion of insurance (health, dental, vision, life, disability) Employer paid holidays, vacations, and sick days Employer contributions toward 401(k), savings plans, & profit-sharing plans Post-retirement health insurance All Rights Reserved8Dr. David P Echevarria

State Unemployment Tax 100% of Federal and State Unemployment taxes are paid by employers Rates and amounts are based on amounts earned by each employee and historic experience All Rights Reserved9Dr. David P Echevarria

W ORKER COMPENSATION INSURANCE Worker compensation insurance provides coverage for employees who are injured on the job. State law usually requires that employers carry this insurance. Worker compensation insurance rates are a function of at least three variables: (1)the type of business or industry, (2)the type of job being performed, and (3)the employer's history of claims. All Rights Reserved10Dr. David P Echevarria

Employer Portion of Benefits Insurance Term Life Health Dental Vision Disability Vacation and Holiday Pay, Sick Days 10 Federal Holidays Amounts due based on length of service All Rights Reserved11Dr. David P Echevarria

Contributions to Retirement Plans Defined Benefit Plans Typically Insurance annuities fully funded by employer Defined Contribution Plans 401(k), 403(b) Employer and Employee both contribute Employer typically matches some portion of employee’s contribution All Rights Reserved12Dr. David P Echevarria

Sample Journal Entries All Rights Reserved13Dr. David P Echevarria

Sample Journal Entries All Rights Reserved14Dr. David P Echevarria

Sample Journal Entries All Rights Reserved15Dr. David P Echevarria

Self-employed Person’s FICA Tax Rate for 2013 The self-employed person’s FICA tax rate for 2014 is 15.3% on the first $117,000 of net income and then 2.9% on the net income that is in excess of $117,000. Social Security: 12.4% of first $113,700 Medicare Tax: 2.90% of every dollar of income 0.9% surtax on income above $200,000 (single) or $250,000 (joint) All Rights Reserved16Dr. David P Echevarria