1. Unit 3 Accounting for a Payroll System
Chapter 12 Payroll Accounting
Chapter 13 Payroll Liabilities and Tax Records
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2. 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.
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3. Chapter 12, Section 1 Calculating Gross Earnings
What Do You Think?
What kinds of earnings might contribute to an employee’s gross earnings?
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4. Calculating Gross Earnings
SECTION 12.1
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.
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5. Calculating Gross Earnings
SECTION 12.1
Key Terms
payroll
pay period
payroll clerk
gross earnings
salary
wage
time card
electronic badge readers
commission
piece rate
overtime rate
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6. Calculating Gross Earnings
SECTION 12.1
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.
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7. Calculating Gross Earnings
SECTION 12.1
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
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8. Calculating Gross Earnings
SECTION 12.1
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.
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9. Calculating Gross Earnings
SECTION 12.1
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.
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10. Calculating Gross Earnings
SECTION 12.1
Commission
Sales employees are often paid a commission, a percentage of the employee’s sales.
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11. Calculating Gross Earnings
SECTION 12.1
Salary Plus Commission or Bonus
Some sales employees are paid a base salary plus a commission or bonus based on their sales.
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12. Calculating Gross Earnings
SECTION 12.1
Piece Rate
Employees receive piece rate when they are paid for each item they produce.
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13. Calculating Gross Earnings
SECTION 12.1
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.
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14. Calculating Gross Earnings
SECTION 12.1
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.
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15. Calculating Gross Earnings
SECTION 12.1
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.
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16. Calculating Gross Earnings
SECTION 12.1
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.
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17. Calculating Gross Earnings
SECTION 12.1
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.
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18. Chapter 12, Section 2 Payroll Deductions
What Do You Think?
What is the purpose of having your employer withhold amounts from your paycheck?
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19. Payroll Deductions Main Idea You Will Learn
SECTION 12.2
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.
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20. Payroll Deductions Key Terms deduction withholding allowance
SECTION 12.2
Key Terms
deduction
withholding allowance
401(k) plan
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21. Payroll Deductions Deductions Required by Law
SECTION 12.2
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
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22. Payroll Deductions Deductions Required by Law Federal Income Tax
SECTION 12.2
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.
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23. Payroll Deductions Form W-4
SECTION 12.2
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.
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24. Payroll Deductions Form W-4 SECTION 12.2
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25. Payroll Deductions Tax Tables
SECTION 12.2
Tax Tables
IRS tables can be used to determine the amount of federal tax to withhold. There are many tax tables available.
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26. Payroll Deductions Deductions Required by Law Social Security Tax
SECTION 12.2
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- 6.2%
Medicare–provides health insurance for people who are elderly or disabled- 1.45%
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27. Payroll Deductions
SECTION 12.2
Congratulations! You have just been hired as a staff accountant with a starting salary of $60,000 per year.
What amount will be deducted for social security taxes for the year? What amount will be deducted for Medicare tax?
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28. Payroll Deductions Deductions Required by Law
SECTION 12.2
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.
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29. Payroll Deductions Voluntary Deductions
SECTION 12.2
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
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30. Payroll Deductions Voluntary Deductions
SECTION 12.2
Voluntary Deductions
The 401(k) plan is a popular voluntary payroll deduction that allows employees to save tax-free dollars for retirement.
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31. Payroll Deductions Key Terms deduction
SECTION 12.2
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.
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32. Chapter 12, Section 3 Payroll Records
What Do You Think?
What might happen if a company did not keep accurate records of payroll?
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33. Payroll Records Main Idea You Will Learn
SECTION 12.3
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.
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34. Payroll Records Key Terms payroll register net pay direct deposit
SECTION 12.3
Key Terms
payroll register
net pay
direct deposit
employee’s earnings record
accumulated earnings
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35. Payroll Records Preparing the Payroll Register
SECTION 12.3
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
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36. Payroll Records Preparing the Payroll Register SECTION 12.3
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37. Payroll Records Paying Employees
SECTION 12.3
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).
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38. Payroll Records The Employee’s Earning Record
SECTION 12.3
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.
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39. Payroll Records Managerial Implications for Payroll Accounting
SECTION 12.3
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.
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40. Payroll Records Key Terms Review payroll register
SECTION 12.3
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.
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41. Payroll Records Key Terms Review employee’s earnings record
SECTION 12.3
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.
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42. Chapter 12 Review 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.
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43. Chapter 12 Review
CHAPTER 12
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( = 4 hours of overtime; 4  $13.50 = $54.00).
Step 4: Add the regular pay and the overtime pay ($ $54.00 = $414.00).
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44. Chapter 12 Review Question 2
What are at least three pieces of information you can learn from your weekly payroll check?
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45. Chapter 12 Review
CHAPTER 12
Answer 2
Among the important facts you can find from your weekly payroll check are these:
The time period in which the work was performed.
The total number of regular hours.
The total number of overtime hours.
Total gross pay.
Amount of Medicare tax withheld.
Amount of social security tax withheld.
Amount of federal income tax withheld.
Amount of state income tax withheld.
Any voluntary deductions withheld.
Total net pay.
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46. Resources Glencoe Accounting Online Learning Center English Glossary
Spanish Glossary
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