Chapter on payroll

1. Accounting 1
Last Update: 2/7/11

2. 12. Understands and applies payroll theories and
procedures by being able to:
a. Explain the importance of accurate payroll
records
b. Calculate gross earnings using different methods
c. Explain and calculate different types of
deductions from gross earnings
d. Prepare a payroll register
e. Prepare an employee’s earnings record
f. Define the accounting terms used in chapter

3.  List of the employees & payments due to
each employee for specific pay period
 Pay period: amount of time over which an
employee is paid
 Weekly
 Every two weeks (bi-weekly)
 Twice a month (semimonthly)
 Monthly

4.  Person responsible for preparing payroll
Makes sure employees paid on time
Makes sure each employee is paid correct
amount
Completes payroll records
Submits payroll reports
Pays payroll taxes

6.  Total amount of money an employee earns
in a pay period
 Calculating gross earnings depends on the
bases on which employee is paid:
Salary
Hourly wage
Commission
Salary plus commission or bonus
Overtime pay

7.  Fixed amount of money paid to an
employee for each pay period.
 Earns certain amount of money regardless
of the hours of service to company
 Example: Salaried person earns $60,000 a
year. $60,000 / 12 = $5,000 a month or
$5,000/4 = $1,250 every week before taxes.

8.  Amount of money paid to an
employee at a specified rate per
hour worked
 Multiple the number of hours work
by the hourly wage
 Example:
$7.25 x 36 hours worked = $261.00
before taxes

9.  On time cards, companies divide an hour into four
15-minute quarters in measuring employee work
time
Quarter Hour Example
On the hour 2:00 p.m.
15 minutes after the hour 2:15 p.m.
30 minutes after the hour 2:30 p.m.
45 minutes after the hour 2:45 p.m.

10.  On time cards, companies divide an hour into four
15-minute quarters in measuring employee work
time
Nearest Quarter
Actual Time Recorded
Hour
7:58 a.m. 8:00 a.m.
12:25 p.m. 12:30 p.m.
1:32 p.m. 1:30 p.m.
4:18 p.m. 4:15 p.m.

11.  Day: Mon., Tues., etc.
 In: Time checked in
 Out: Time checked out
for lunch
 In: Time checked In
 Out: Time checked out
for the day
 Total: number of hours
worked on that day
 Total Hours: number of
hours worked for week

12.  Hours: Place # of hours worked for pay period
 Rate: Amount paid per hour
 Amount: Multiple Hours x Rate = Amount
 Overtime: amount worked over 40 hours for that
pay period.

13.  Overtime: amount that exceeds 40 hours in a
week (80 hours if bi-weekly)
 Overtime rate: Set by the Fair Labor Standards
Act of 1938—must pay 1 ½ (1.5) times the
employees regular hourly pay rate
Example: Employee is paid $7.25 an hour.
Overtime Rate: $7.25 x 1.5 = $10.88
Hours worked: 44—of the 44, 4 are overtime.

14. 40 x $ 7.25 = $290.00
4 x $10.88= $ 43.52
44 hours $333.52

15.  Amount paid to an employee based on a
percentage of the employee’s sales
 Sales employees often paid on
commission
 Example: Total sales: $8,254
Commission: 3%
$8,254 x 3% (.03) = $412.70

16.  Some sales people earn a base salary +
commission
 Paid salary: $200 a week
 3% of sales:
 Sales: $4,810
$4,810 x 3% (.03) = $144.30 + $200 = $344.30
Go to page 292 in book; problem 12-1

18.  Amount deducted from check, either required
by law (taxes) or requested by employee
 Results in “net pay” being less than gross
earnings

19. 1. Federal Income Tax
2. Social Security Tax
(FICA)
 Social security tax
 Medicare tax
3. State and Local
Income Taxes

20. 1. Paid to federal government based on annual
income
2. Employers are required to withhold a certain
amount of money from each payroll check
3. Employer sends money paid by employees to
federal government
4. Employer acts as collection agency for
federal government

21. 1. Amount owed to government
based on estimated of amount of
income tax employee will actually
owe
2. Exact amount is determined when
employee prepares an income tax
return
3. Overpay, receive a refund
4. Underpay, amount is due when tax
return is filed

22. 1. Amount withheld depends on 3 factors:
 Employee’s marital status
 Number of allowances claimed by employee
 Employee’s gross earnings
2. First two are found on the W-4 statement
3. Form W-4 filled out by each employee when
starting a job
Example of W-4 on next page

24. 1. Most
employers
use federal
tax tables to
determine
federal
income tax
2. See page 295
in book

25. 1. Present social security system established
by Federal Insurance Contribution Act
(FICA) in 1935 by Congress
2. Provide income to certain individuals:
 Old-age & disability insurance to retired &
disabled persons & their dependents
 Survivors benefits to spouse & dependents
of deceased worker
 Medicare program provides health
insurance benefits for elderly

26. 1. SS tax is an exact tax
2. Rates are set by Congress
3. Two types of SS tax:
Social security tax
Medicare tax
4. Tax rates are as follows:
Social Security: 6.20%
Medicare Tax: 1.45%
Total FICA tax 7.65%

27. 1. Social Security:
maximum amount to be
taxed today is:
$106,800 (the book will
use $68,400)
2. Medicare: has no
maximum

28. 1. Most state & cities tax earnings of people
who live in their state or city
2. Usually set as % of gross earnings

29. 1. Other deductions by employees are
voluntary, including:
Union dues
Health insurance
Life insurance
Pension & other retirement
contributions –401(k) & 403(b)
Credit union deposits and payments
U.S. savings bonds
Charitable contributions
Go to page 298 in book & due
Problem 12-2

31. 1. Payroll Register: form that
summarizes information about
employees’ earnings for each pay
period
2. Includes:
Employees’ I.D. #
Name
Marital status
Number of allowances claimed

32. Page 298 in your book

34. 1. Payroll check is written for each
employee for “Net pay” amount
2. Company has only few employees,
checks are written from regular
checking account
3. Companies with many employees,
usually use a separate checking
account

35. 1. Separate checking account used, need to
transfer funds from regular checking into
payroll checking account
2. The amount of transfer is for the “total net
pay” for all employees
3. Then, individual checks are written to each
employee from the payroll checking
account

36. 1. If company does direct deposit, net pay is
deposited in the employee’s personal
bank account by employee
2. No check is written

38. 1. Record contains all of payroll information
for each employee, so that employee and
employer knows how much has been
paid and deducted for each pay period

39. Page 304 in your book

40. That’s
all
folks!
Accounting 1