Chapter

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8 Payroll Accounting: Employee Earnings and Deductions

Learning Objective

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1

Distinguish between employees and independent contractors.

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Payroll costs are major expenditures for most businesses

Records provide data for analyzing and controlling these expenditures

Laws require records to be kept For the business as a whole For each employee

Payroll Record Keeping

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Employers or Independent Contractors?

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Work under the control and direction of an employer

Examples: Secretaries Sales Clerks Plant Supervisors Maintenance Workers

Employees

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Perform services for a fee and do not work under the control and direction of the company paying for the services

Examples: Lawyers Public Accountants Real Estate Agents

Independent Contractors

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Employees involve: More laws and regulations Taxes that must be deducted Payroll records to maintain Numerous reports to file

Only one form must be filed for independent contractors

Form 1099

Employees vs. Independent Contractors

Learning Objective

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2

Calculate employee earnings and deductions.

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Salaries Compensation for managerial or administrative services Expressed in biweekly, monthly, or annual terms

Wages Compensation for skilled and unskilled labor Expressed in terms of hours, weeks, or units produced

Salaries and Wages

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Fair Labor Standards Act (FLSA) Requires employers to pay overtime (1½ times the regular rate) to any hourly employee who works over 40 hours in a week Some salaried employees are exempt from the FLSA rules

Overtime

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When compensation is based on time, a record must be kept of the time worked by each employee

Examples: Time cards, plastic cards or badges with special magnetic strip barcodes

The hours worked are multiplied by the rate of pay to determine total earnings

Computing Total Earnings

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EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik’s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday.

Computing Total Earnings (cont.)

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Computing Total Earnings (cont.)

40 hours × $12 per hour = $480

$12 × 1½ = $18 overtime rate

11 hours × $18 per hour = $198

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EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik’s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday.

Computing Total Earnings (cont.)

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Computing Total Earnings (cont.)

40 hours × $12 per hour = 11 hours × $18 per hour =

4 Sunday hours, twice the regular rate ($12 × 2 = $24 Sunday rate)

$480 198 96 4 hours × $24 per hour =

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EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik’s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday.

Computing Total Earnings (cont.)

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Computing Total Earnings (cont.)

40 hours × $12 per hour = 11 hours × $18 per hour =

Also called “gross pay.”

4 hours × $24 per hour =

$480 198 96

Total earnings for the week $774

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EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week.

Computing Total Earnings (cont.)

In order to compute her overtime rate, we must determine her regular

hourly rate.

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EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week.

Computing Total Earnings (cont.)

Step #1—Determine her annual salary.

$2,288 per month × 12 months

= $27,456 annual pay

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EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week.

Computing Total Earnings (cont.)

Step #2—Determine her weekly salary.

$27,456 annual salary ÷ 52 weeks

= $528.00 pay per week

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EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week.

Computing Total Earnings (cont.)

Step #3—Compute regular hourly pay.

$528 per week ÷ 40 hours per week

= $13.20 pay per regular hour

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EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week.

Computing Total Earnings (cont.)

Step #4—Compute overtime rate.

$13.20 per hour × 1½

= $19.80 overtime pay per hour

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Three categories: Federal (and possibly state and city) income tax withholding Employee FICA tax withholding Voluntary deductions

Gross pay – Deductions = Net pay Also called take-home pay

Deductions from Total Earnings

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Required by federal law Applied toward the payment of the employee’s federal income tax Amount withheld determined by:

Total earnings Marital status Number of withholding allowances claimed Length of the pay period

Income Tax Withholding

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Exempt a specific dollar amount of an employee’s gross pay from federal income tax withholding Computed on Form W-4 Employee’s Withholding Allowance Certificate

Based on the marital status and the number of allowances claimed

In general, each employee is permitted one personal withholding allowance, one for a spouse who does not also claim an allowance, and one for each dependent

Withholding Allowances

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EXAMPLE: Ken Istone, who is married and claims 4 allowances, has gross earnings of $545 for the week ending December 19, 20--. Determine the amount of federal income tax to be withheld using the wage-bracket method.

Wage-Bracket Method

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If the wages are—

At least But less

than

And the # of withholding allowances claimed is—

The amount of income tax to be withheld is— $ 390 $ 400

400 410

540 550 550 560 560 570 570 580 580 590

630 640 640 650

0

24 25

44 46 47 49 50

58 59

1 2 3 4 5 6 7 8 9 10

18 19

35 36 38 39 41

48 50

12

26 27 28 30 31

39 40

5 6

20 21 22 23 24

29 31

0 0 0 0 0 0 0 0 0 0 0 0

0 0 0

0 0

14 7 1 0 15 16 17 18

23 24

8 9

10 11

16 17

2 0 0 0 0 3 0 0 0 0 4 0 0 5 0 0

0 0 0 0

11

10 4 0 0 0 11 5 0 0 0

Step #1 Find the row for

wages of “at least $540, but less than $550.”

MARRIED Persons—WEEKLY Payroll Period

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If the wages are—

At least But less

than

And the # of withholding allowances claimed is—

The amount of income tax to be withheld is— $ 390 $ 400

400 410

540 550 550 560 560 570 570 580 580 590

630 640 640 650

0

24 25

44 46 47 49 50

58 59

1 2 3 4 5 6 7 8 9 10

18 19

35 36 38 39 41

48 50

12

26 27 28 30 31

39 40

5 6

20 21 22 23 24

29 31

0 0 0 0 0 0 0 0 0 0 0 0

0 0 0

0 0

14 7 1 0 15 16 17 18

23 24

8 9

10 11

16 17

2 0 0 0 0 3 0 0 0 0 4 0 0 5 0 0

0 0 0 0

11

10 4 0 0 0 11 5 0 0 0

Step #2 Find the column headed “4

withholding allowances.”

MARRIED Persons—WEEKLY Payroll Period

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If the wages are—

At least But less

than

And the # of withholding allowances claimed is—

The amount of income tax to be withheld is— $ 390 $ 400

400 410

540 550 550 560 560 570 570 580 580 590

630 640 640 650

0

24 25

44 46 47 49 50

58 59

1 2 3 4 5 6 7 8 9 10

18 19

35 36 38 39 41

48 50

12

26 27 28 30 31

39 40

5 6

20 21 22 23 24

29 31

0 0 0 0 0 0 0 0 0 0 0 0

0 0 0

0 0

14 7 1 0 15 16 17 18

23 24

8 9

10 11

16 17

2 0 0 0 0 3 0 0 0 0 4 0 0 5 0 0

0 0 0 0

11

10 4 0 0 0 11 5 0 0 0

Step #3 Find the amount where they

cross. This is the amount to be withheld.

MARRIED Persons—WEEKLY Payroll Period

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Includes amounts for: Social Security

Provides pension and disability benefits Medicare

Provides health insurance

Required by the Federal Insurance Contributions Act (FICA)

Employee FICA Tax Withholding

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Tax rates are set by Congress Social Security

6.2% on maximum earnings of $110,100 Medicare

1.45% on ALL earnings; there is no maximum

Rates can be changed annually by Congress

Employee FICA Tax Withholding (cont.)

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EXAMPLE: Sarah Cadrain had earnings of $2,000 for the December 6–12 pay period, bringing her earnings year-to-date to $109,240.

Employee FICA Tax Withholding (cont.)

Sarah’s earnings have not yet reached the maximum of $110,100.

ALL of her earnings for this week are subject to Social Security and Medicare tax.

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EXAMPLE: Sarah Cadrain had earnings of $2,000 for the December 6–12 pay period, bringing her earnings year-to-date to $111,100.

Employee FICA Tax Withholding (cont.)

$2,000

Gross Pay × Tax Rate Tax

Social Security 6.2% Medicare 1.45%

$ 124 29

$153

=

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EXAMPLE: The following week Cadrain earns $1,860, bringing her earnings year-to-date to $111,100 (over the Social Security maximum).

Employee FICA Tax Withholding (cont.)

$111,100.00 Year-to-date earnings

110,100.00 Social Security maximum

Amount not subject to S.S. tax 1,000.00

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EXAMPLE: The following week Cadrain earns $1,860, bringing her earnings year-to-date to $111,100 (over the Social Security maximum).

Employee FICA Tax Withholding (cont.)

$1,860.00 Gross pay 1,000.00 Amount not subject to S.S. tax

Amount subject to S.S. tax $ 860.00 Tax rate 6.2% Social Security tax $ 53.32

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EXAMPLE: The following week Cadrain earns $1,860, bringing her earnings year-to-date to $111,100 (over the Social Security maximum).

Employee FICA Tax Withholding (cont.)

$1,860.00 Gross pay

Since Medicare has no maximum earnings, all of Cadrain’s gross

pay is subject to the Medicare tax.

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EXAMPLE: The following week Cadrain earns $1,860, bringing her earnings year-to-date to $111,100 (over the Social Security maximum).

Employee FICA Tax Withholding (cont.)

$1,860.00 Gross pay Tax rate 1.45% Medicare tax $ 26.97

Sarah’s total FICA tax is $80.29 ($53.32 S.S. + $26.97 Med.)

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Deductions that are optional and depend on specific agreements between the employee and employer Examples:

U.S. savings bond purchases Health insurance premiums Credit union deposits Pension plan payments Charitable contributions

Voluntary Deductions

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EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week.

Computing Net Pay

Gross pay Deductions:

Federal income tax withholding $ 10.00

$545.00

From the wage bracket withholding tables

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EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week.

Computing Net Pay (cont.)

All his pay is subject to S.S. tax ($545 × 6.2%)

33.79 Social Security tax withholding

Gross pay Deductions:

Federal income tax withholding

$545.00

$ 10.00

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EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week.

Computing Net Pay (cont.)

Gross pay Deductions:

Federal income tax withholding $ 10.00 Social Security tax withholding 33.79 Medicare tax withholding 7.90

$545.00

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EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week.

Computing Net Pay (cont.)

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COMPUTING NET PAY

Gross pay Deductions:

Federal income tax withholding $ 10.00 Social Security tax withholding 33.79 Medicare tax withholding 7.90 Health insurance premiums 10.00

Total deductions 61.69 Net pay

$545.00

$483.31

Learning Objective

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3

Describe and prepare payroll records.

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Should provide the following information on each employee

Name, address, occupation, social security number, marital status, and number of withholding allowances Gross amount of earnings, date of payment, period covered by each payroll Gross amount of earnings accumulated for the year Amounts of taxes and other items withheld

Payroll Records

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Three types:

Payroll Records (cont.)

PAYROLL REGISTER

PAYROLL CHECK with earnings statement

EMPLOYEE EARNINGS RECORD

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PAYROLL REGISTER (LEFT SIDE)

ALLOW. # MARITAL

STATUS NAME

EARNINGS REGULAR OVER-

TIME TOTAL

A payroll register is a form used to assemble the data required

at the end of each payroll period.

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ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME TOTAL

Since marital status and number of allowances are

used to compute withholding taxes, they are recorded on the payroll register.

PAYROLL REGISTER (LEFT SIDE)

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ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,800.00 60.00

TOTAL

1,860.00

Earnings for this period are shown, categorized by

regular and overtime earnings.

PAYROLL REGISTER (LEFT SIDE)

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TOTAL EARNINGS

111,100.00 1,860.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 860.00

This pay period has taken Cadrain’s earnings above the Social Security maximum.

As computed earlier, only $1,260 of this period’s earnings is subject to the

Social Security tax.

PAYROLL REGISTER (LEFT SIDE)

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FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

All deductions from total earnings are listed.

PAYROLL REGISTER (RIGHT SIDE)

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UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

280.29 1,579.71 409

Deductions are totaled and subtracted from

total earnings to arrive at net pay.

PAYROLL REGISTER (RIGHT SIDE)

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ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,800.00 60.00

TOTAL

1,860.00 Guder, James 1 S 760.00 140.00 900.00

The payroll information for the other employees

is recorded in the same manner.

PAYROLL REGISTER (LEFT SIDE)

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TOTAL EARNINGS

111,100.00 1,860.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 860.00

900.00 43,400.00 900.00

PAYROLL REGISTER (LEFT SIDE)

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FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00

PAYROLL REGISTER (RIGHT SIDE)

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UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

286.19 1,373.81 409 20.00 209.85 690.15 410

PAYROLL REGISTER (RIGHT SIDE)

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ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,600.00 60.00

TOTAL

1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 4 M 545.00 545.00

PAYROLL REGISTER (LEFT SIDE)

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TOTAL EARNINGS

107,200.00 1,660.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 1,260.00

900.00 43,400.00 900.00 545.00 27,025.00 545.00

PAYROLL REGISTER (LEFT SIDE)

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FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00 10.00 33.79 7.90 10.00

PAYROLL REGISTER (RIGHT SIDE)

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UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

280.29 1,579.71 409 20.00 209.85 690.15 410

10.00 61.69 483.31 411

PAYROLL REGISTER (RIGHT SIDE)

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ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,800.00 60.00

TOTAL

1,860.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 4 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00

PAYROLL REGISTER (LEFT SIDE)

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TOTAL EARNINGS

111,100.00 1,860.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 860.00

900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00 10.00 33.79 7.90 10.00 54.00 47.99 11.22 13.00 20.00

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

286.19 1,373.81 409 20.00 222.85 677.15 410

10.00 61.69 483.31 411 20.00 146.21 627.79 412 13.00

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,600.00 60.00

TOTAL

1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TOTAL EARNINGS

107,200.00 1,660.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 1,260.00

900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00 10.00 33.79 7.90 10.00 54.00 47.99 11.22 13.00 20.00 7.00 27.28 6.38 13.00

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

280.29 1,579.71 409 20.00 209.85 690.15 410

10.00 61.69 483.31 411 20.00 146.21 627.79 412 13.00

13.00 53.66 386.34 413

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,800.00 60.00

TOTAL

1,860.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TOTAL EARNINGS

111,100.00 1,860.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 860.00

900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00 10.00 33.79 7.90 10.00 54.00 47.99 11.22 13.00 20.00 7.00 27.28 6.38 13.00

72.00 45.01 10.53

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

280.29 1,579.71 409 20.00 209.85 690.15 410

10.00 61.69 483.31 411 20.00 146.21 627.79 412 13.00

13.00 53.66 386.34 413 127.54 598.46 414

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,800.00 60.00

TOTAL

1,860.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 4 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00 Tucci, Paul 3 M 490.00 490.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TOTAL EARNINGS

111,100.00 1,860.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 860.00

900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00 490.00 25,050.00 490.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00 10.00 33.79 7.90 10.00 54.00 47.99 11.22 13.00 20.00 7.00 27.28 6.38 13.00

72.00 45.01 10.53 12.00 30.38 7.11 10.00

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

280.29 1,579.71 409 20.00 209.85 690.15 410

10.00 61.69 483.31 411 20.00 146.21 627.79 412 13.00

13.00 53.66 386.34 413 127.54 598.46 414

10.00 59.49 430.51 415

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,800.00 60.00

TOTAL

1,860.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00 Tucci, Paul 5 M 490.00 490.00 Wiles, Harry 1 S 300.00 300.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TOTAL EARNINGS

111,100.00 1,860.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 860.00

900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00 490.00 25,050.00 490.00 300.00 6,300.00 300.00 300.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00 10.00 33.79 7.90 10.00 54.00 47.99 11.22 13.00 20.00 7.00 27.28 6.38 13.00

72.00 45.01 10.53 12.00 30.38 7.11 10.00

20.00 18.60 4.35

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

280.29 1,579.71 409 20.00 209.85 690.15 410

10.00 61.69 483.31 411 20.00 146.21 627.79 412 13.00

13.00 53.66 386.34 413 127.54 598.46 414

10.00 59.49 430.51 415 42.95 257.05 416

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ALLOW. # MARITAL

STATUS NAME

Cadrain, Sarah 4 M

EARNINGS REGULAR OVER-

TIME 1,600.00 60.00

TOTAL

1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00 Tucci, Paul 5 M 490.00 490.00 Wiles, Harry 1 S 300.00 300.00

5,143.00 692.00 5,835.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

TOTAL EARNINGS

111,100.00 1,860.00

CUMULATIVE TOTAL

TAXABLE EARNINGS UNEMPLOYMENT

COMP. SOCIAL

SECURITY 860.00

900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00 490.00 25,050.00 490.00 300.00 6,300.00 300.00 300.00

6,035.00 293,715.00 300.00 5,035.00

PAYROLL REGISTER (LEFT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

FEDERAL INCOME TAX

53.32 200.00

SOC. SEC. TAX

MEDICARE TAX

26.97

HEALTH INSURANCE

UNITED WAY

121.00 55.80 13.05 20.00 10.00 33.79 7.90 10.00 54.00 47.99 11.22 13.00 20.00 7.00 27.28 6.38 13.00

72.00 45.01 10.53 12.00 30.38 7.11 10.00

20.00 18.60 4.35

496.00 312.17 87.51 46.00 40.00

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

UNITED WAY

TOTAL NET PAY CHECK NO.

HEALTH INSURANCE

DEDUCTIONS

280.29 1,579.71 409 20.00 209.85 690.15 410

10.00 61.69 483.31 411 20.00 146.21 627.79 412 13.00

13.00 53.66 386.34 413 127.54 598.46 414

10.00 59.49 430.51 415 42.95 257.05 416

46.00 40.00 981.68 5,053.32

PAYROLL REGISTER (RIGHT SIDE)

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Employees may be paid in cash or by check The employer furnishes an earnings statement to each employee along with his or her paycheck

In many cases, payment is made by direct deposit or electronic funds transfer (EFT) by the employer to the employee’s bank

Payment by check or direct deposit provides better internal accounting control than payment by cash

Paying Employees

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

EMPLOYEE EARNINGS RECORD

REGULAR OVERTIME PERIOD ENDED

EARNINGS TOTAL CUMULATIVE

TOTAL

GENDER DEPARTMENT OCCUPATION SOCIAL SECURITY # M F

Maintenance Service 393-58-8194

12/5 12/12

11/28 545.00 545.00 545.00

75.00 75.00 75.00

620.00 620.00 620.00

25,240.00 25,860.00 26,480.00 A separate earnings record

is maintained for each employee.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

EMPLOYEE EARNINGS RECORD

REGULAR OVERTIME PERIOD ENDED

EARNINGS TOTAL CUMULATIVE

TOTAL

GENDER DEPARTMENT OCCUPATION SOCIAL SECURITY # M F

Maintenance Service 393-58-8194

12/5 12/12

11/28 545.00 545.00 545.00

75.00 75.00 75.00

620.00 620.00 620.00

25,240.00 25,860.00 26,480.00

Let’s record the last entry of the year for Ken Istone.

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EMPLOYEE EARNINGS RECORD

REGULAR OVERTIME PERIOD ENDED

EARNINGS TOTAL CUMULATIVE

TOTAL

GENDER DEPARTMENT OCCUPATION SOCIAL SECURITY # M F

Maintenance Service 393-58-8194

12/5 12/12

11/28 545.00 545.00 545.00

75.00 75.00 75.00

620.00 620.00 620.00

25,240.00 25,860.00 26,480.00

12/19 545.00 545.00 27,025.00

Earnings for this period are recorded and the cumulative

earnings are updated.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

EMPLOYEE EARNINGS RECORD

UNEMPLOYMENT COMPENSATION

SOCIAL SECURITY

TAXABLE EARNINGS FEDERAL

INCOME TAX SOCIAL

SECURITY TAX

MARITAL STATUS ALLOWANCES PAY RATE

DEDUCTIONS

M $545/week

620.00 620.00 620.00

9.00 9.00 9.00

38.44 38.44 38.44

545.00 1.00 33.79

Deductions are noted.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

EMPLOYEE EARNINGS RECORD

MEDICARE TAX

HEALTH INSURANCE

UNITED WAY

OTHER

DATE OF BIRTH DATE HIRED NAME/ADDRESS

DEDUCTIONS

8/17/64 1/3/87 Ken M. Istone 1546 Swallow Drive St. Louis, MO 63144-4752

8.99 8.99 8.99

10.00 10.00 10.00

7.90 10.00

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

EMPLOYEE EARNINGS RECORD

OTHER TOTAL CHECK #

AMOUNT

NAME/ADDRESS EMPLOYEE NUMBER

DEDUCTIONS

Ken M. Istone 1546 Swallow Drive St. Louis, MO 63144-4752

3

66.43 66.43 66.43

387 395 403

547.57 547.57 547.57

52.69 411 492.31

Deductions are totaled and net pay is recorded, along

with the paycheck’s number.

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4

Account for employee earnings and deductions.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

JOURNALIZING PAYROLL TRANSACTIONS

DEBIT DATE DESCRIPTION PR CREDIT 1 2 3 4

5 6 7 8 9

10

Journal entries are now made to record the payroll expenses and liabilities.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

JOURNALIZING PAYROLL TRANSACTIONS

1 2 3 4

5 6 7 8 9

10

The payroll register is the source for the journal entry.

DEBIT DATE DESCRIPTION PR CREDIT

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JOURNALIZING PAYROLL TRANSACTIONS

1 2 3 4

5 6 7 8 9

10

Dec. 19 Wages and Salaries Expense 5,835.00 DEBIT DATE DESCRIPTION PR CREDIT

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

JOURNALIZING PAYROLL TRANSACTIONS

1 2 3 4

5 6 7 8 9

10

Dec. 19 Wages and Salaries Expense 5,835.00 Employee Income Tax Pay. Social Security Tax Payable Medicare Tax Payable Health Ins. Prem. Payable United Way Contrib. Pay.

488.00 336.97 84.61 46.00

40.00

Each deduction is recorded in a separate liability account.

DEBIT DATE DESCRIPTION PR CREDIT

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JOURNALIZING PAYROLL TRANSACTIONS

1 2 3 4

5 6 7 8 9

10

Dec. 19 Wages and Salaries Expense 6,035.00 Employee Income Tax Pay. Social Security Tax Payable Medicare Tax Payable Health Ins. Prem. Payable United Way Contrib. Pay. Cash

496.00 312.17 87.51 46.00

40.00 5,053.32

DEBIT DATE DESCRIPTION PR CREDIT

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Wages and Salaries Expense

WAGES AND SALARIES EXPENSE

DEBIT CREDIT

Debit gross pay of employees for each

pay period.

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Employee Income Tax Payable

EMPLOYEE INCOME TAX PAYABLE

DEBIT CREDIT

Credited when federal income tax is withheld

from employees.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Employee Income Tax Payable (cont.)

EMPLOYEE INCOME TAX PAYABLE

DEBIT CREDIT

Debited when withheld taxes are paid to

the IRS.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Social Security Tax Payable

SOCIAL SECURITY TAX PAYABLE

DEBIT CREDIT

Both the employer and employee pay Social Security taxes.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Social Security Tax Payable (cont.)

SOCIAL SECURITY TAX PAYABLE

DEBIT CREDIT

Credited when taxes are withheld from

employees’ earnings.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Social Security Tax Payable (cont.)

SOCIAL SECURITY TAX PAYABLE

DEBIT CREDIT

Also credited for taxes imposed on the

employer.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Social Security Tax Payable (cont.)

SOCIAL SECURITY TAX PAYABLE

DEBIT CREDIT

Debited when taxes are paid.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Medicare Tax Payable

MEDICARE TAX PAYABLE

DEBIT CREDIT

WORKS EXACTLY THE SAME AS SOCIAL SECURITY TAX PAYABLE

Learning Objective

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5

Describe various payroll record-keeping methods.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Manual system: The same information is recorded several times Can be very inefficient

Payroll processing center: A business that sells payroll record-keeping services

Electronic system: A computer system that performs all payroll record keeping and prepares payroll checks

Payroll Record-Keeping Methods

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ELECTRONIC PAYROLL SYSTEM

INPUT PROCESSING OUTPUT

EMPLOYEE:

SOCIAL SECURITY #

HOURS WORKED

Only the employee’s social security number

and hours worked are input each pay period.

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ELECTRONIC PAYROLL SYSTEM

INPUT PROCESSING OUTPUT

EMPLOYEE:

SOCIAL SECRUITY

NO. HOURS

WORKED

COMPUTER

Payroll Register

Paychecks

Employee Earnings Record