Ch 12: Payroll Accounting Ms. Alltucker Accounting II

Ch 12: Section 1: Calculating Gross Earnings  What you’ll learn:  The importance of accurate payroll records.  How to calculate gross earnings  Why it’s important:  For many businesses payroll is the largest expense. It is essential that the payroll system accurately determine the gross pay for each employee for every pay period.

The importance of Payroll Records  Payroll  list of the employees and the payments due to each employee for a specific pay period  Biggest expense for most companies  Most companies set up a payroll system for recording and reporting employee earnings information  Payroll system goals:  1. The collection and processing of all the information needed to prepare and issue payroll checks  2. The generation of payroll records needed for accounting purposes and for reporting to government agencies, mgmt  Often operated by a payroll clerk

Payroll Records  Payroll clerk  Makes sure employees are paid on time  Makes sure each employee is paid the correct amount  Completes payroll records  Submits payroll reports  Pays payroll taxes

Payroll Records

Computing Gross Pay  Gross Pay  the total amount of money an employee earns in a pay period  Can be based on:  Salary  Hourly wage  Commission  Salary plus commission or bonus  Overtime pay  Also called salary expense

Computing Gross Pay  Salary  Fixed amount of money paid to an employee for each pay period  Generally paid to managers and/or supervisors  Earns the same amount regardless of the number of hours worked during the pay period  Hourly wage  Amount of money paid to an employee at a specified rate per hour worked  Hours worked X hourly wage = gross earnings  40 hours X $10.00 = $400 gross earning

Computing Gross Pay  Hourly wage  Many employees required to keep time cards of hours worked during a given pay period  Divide the hour into 15 minute quarters for measuring work time  Quarter HourExample  On the hour2:00 pm  15 mins after the hour2:15 pm  30 mins after the hour2:30 pm  45 mins after the hour2:45 pm  Employees seldom arrive and leave exactly on the quarter hour  Round the hours to the nearest quarter hour

Computing Gross Pay  Commission  amount paid to an employee based on a percentage of the employee’s sales  Incentive to employees to increase sales  Example:  Joyce Torrez is paid a 5% commission on all her sales  Sales = $8,254  8254 X.05 = $ gross earnings

Computing Gross Pay  Salary plus commission or bonus  Earn a base salary plus a commission or bonus on the amount of the sales  Example:  Weekly salary= $200 plus 3% commission on sales  Weekly sales: $4,810  (4810 X.03) = $344

Computing Gross Pay  Overtime Pay  State and federal laws regulate the number of hours some employees may work in a week  40 hours/week  Overtime = hours work above and beyond 40 hours a week  Overtime rate = 1.5 times the employee’s regular hourly pay rate  Example: Jesse worked 43 hours last week at an hourly rate of $6.60.  What is his overtime rate?  What is his gross earnings?

Computing Gross Pay  Overtime pay  6.60 X 1.5 = $9.90 (overtime rate)  HoursRate  40 (regular) X6.60 = $  3 (overtime) X 9.90 =  $

Thinking Critically  List two goals a payroll system should achieve.  How does an electronic badge reader record the correct arrival and departure time?  Do problems 12-1 and 12-5