1. PAYROLL ACCOUNTING Chapter 12

2. Using a Payroll System  Payroll – list of the employees and the payments due to each for a pay period  Pay Period – the amount of time over which an employee is paid  Weekly, Biweekly, Monthly, Semimonthly  Payroll Clerk – Person responsible for preparing the payroll

3. Computing Gross Pay  Gross Earnings – a.k.a. gross pay; The total amount of money an employee earns in a pay period  May Include: Salary Hourly wage Commission Salary plus commission or bonus Piece Rate  Salary – Fixed amount of money paid to an employee for a pay period

4. Computing Gross Pay  Wage – Amount of money paid to an employee at a specified rate per hour  Time Card – Record of the times an employee has worked  Electronic Badge Readers – New school time cards

5. Computing Gross Pay  Commission – Amount paid to an employee based on a percentage of sales  Piece Rate – A specific amount paid to employees based on each item produced  Overtime Rate – 1 ½ times the hourly rate  Set by Fair Labor Standards Act, 1938  Applies to every hour worked over 40 (w/ exceptions)  Example: 43 hours = 40 hours regular + 3 hours OT  Problem 12-1

6. Payroll Deductions  Deduction – An amount subtracted from gross earnings  Federal Income Tax – Tax based on income  Graduated Tax Rate  Withholding Allowance – Reduces the amount of income tax to be withheld  FICA – Federal Insurance Contributions Act, 1935  Social Security 6.2%  Medicare 1.45%  Fiscal Cliff???

7. Payroll Deductions  State Income Tax  5% in Illinois  Flat Rate  Voluntary Deductions  401k plan – Retirement savings plan 59 ½ Some companies match contribution Tax Deferred

8. Payroll Records  Payroll Register – form that summarizes information about employees’ earnings for each pay period  Net Pay – Amount left after deductions  This is what goes on the paycheck  Cash is credited for this amount  Direct Deposit – Net pay is electronically sent to employee’s bank account

9. Earnings Record  Employee’s Earnings Record – A record of all the payroll information related to an employee  Figure 12-7  Accumulated Earnings – Amount of earnings from the beginning of the year  YTD earnings