chapter 10 payroll computations, records, and payment
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Payroll Laws & Taxes
Employee vs. independent contractorFederal Employee Earnings &
Withholding Laws Fair Labor Standards Act of 1938 Social Security Tax Medicare Tax Federal Income Tax
State & Local Taxes
Employer’s Payroll Taxes & Insurance Costs Social Security Tax (FICA) Medicare Tax Federal Unemployment Tax (FUTA) State Unemployment Tax (SUTA) Workers’ Compensation Insurance
Calculating Earnings & Taxes
Computing Employee Total EarningsHourly rate basisSalary basisCommission basisPiece-rate basis
Hourly Employees
Need two pieces of data from weekly time sheets, time cards, etc. Number of hours worked Rate of Pay
Gross Pay Regular rate Overtime rate – 1½ times regular rate
Withholdings for Hourly Employees Required by Law
FICA (Social Security) 6.2% on the first $76,200
Medicare 1.45%
Federal income tax Use wage-bracket table method
• # of withholding allowances (W-4) • Total earnings during pay period
Withholdings Not Required by Law
Group life insuranceGroup medical insuranceCompany retirement plansBank or credit union savings plansLoan repaymentsSavings bonds, stocks, investment plansUnion dues
Determining Pay for Salaried Employees
Hours Worked Salaried workers who do not hold supervisory jobs
- covered by the Wage & Hour Law Salaried workers who hold supervisory or
managerial positions – are exempt from the Wage & Hour Law
Withholdings required by law Same procedures for salaried or hourly
employees.
Recording Payroll for Employees
Payroll RegisterAllowances Marital StatusCumulative EarningsNo. of hours workedRate or Salary
Recording Payroll for Employees
Payroll Register Continued Earnings
• Regular – Overtime – Gross - Cumulative Taxable Wages
• Social Security - Medicare – FUTA Deductions
• SS – Medicare – Income Tax - Other Distribution
• Net Amount – Check # - Type
Recording Payroll Information
Two separate journal entries: Record the payroll expense for the
employer Payment to the employees
• Can be written on the regular bank account• Individual payroll checks issued from a payroll
bank account
Individual Earnings Record
Individual Earnings record is created for each employee Also called a compensation record Shows all the payroll information for one
person through his employment history
Payroll Entry #1
Salaries Expense 1,960.00
Social Security Tax Payable 121.52
Medicare Tax Payable 28.42
Employee Income Tax Payable 173.00
Health Insurance Premiums Payable 40.00
Salaries Payable 1,597.06
Payroll for week ending 3/3/05
Gross wages
Net wages
Payroll Entry #2
Salaries Payable 1,597.06
Cash 1,597.06
Payment of salary for week ending 3/3/05.
Net wages
Completing the Payroll
The two payroll journal entries below must be posted to the ledger accounts. To record the employer’s share of the
payroll, and To record the payment of payroll to the
employees
Learning Objectives Explain the major federal laws relating to employee
earnings and withholding Compute gross earnings of employees Determine employee deductions for social security tax Determine employee deductions for Medicare tax Determine employee deductions for income tax Enter gross earnings, deductions, and net pay in the
payroll register Journalize payroll transactions in the general journal Maintain an earnings record for each employee Define the accounting terms new to this chapter
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