Chapter 10: Payroll Computations, Records, and Payments

Employee's Withholding Allowance Certificate, Form W-4

employees complete this to claim withholding allowances

Overtime premium calculation method 2

hours overtime x (rate per hour x 1 1/2)

Gross Pay Calculation

hours x rate per hour = gross pay

Workers' Compensation insurance

is not a tax, but insurance that protects employees against losses from job-related injuries or illnesses, or compensates their families if death occurs in the course of the employment.

Piece-rate basis

manufacturing workers are paid based on the number of units produced

Medicare tax

A tax levied equally on employees and employers to provide medical care for the employee and the employee's spouse after each has reached age 65

Medicare tax

tax levied equally on employees and employers to provide medical care for the employee and the employee's spouse after each has reached age 65.

Tax-exempt Wages

are earnings in excess of the base amount set by the Social Security Act. These are not subject to social security withholding

Steps to determine the amount to withhold:

1. Choose the table for the pay period and the employee's marital status. 2. From the row in the table that matches the wages earned. Find the column that matches the number of withholding allowances claimed on Form W-4. The income tax to withhold is the intersection of the row and the column.

wage-bracket table method

Although there are several ways to compute the federal income tax to withhold from an employee's earnings, is almost universally used.

The Federal Insurance Contributions Act (FICA)

Commonly referred to as the Social Security Act; first passed in the 1930s, has been amended frequently

Medicare Tax calculation

Employee (withheld) 1.45% Employer (match) 1.45 Total 2.90%

Medicare Tax calculation

Employee (withheld) 1.45% Employer (match) 1.45% Total 2.90%

Social Security Tax calculation

Employee (withheld) 6.2% Employer (match) 6.2 Total 12.4%

Social Security Tax calculation

Employee (withheld) 6.2% Employer (match) 6.2 % Total 12.4%

Social security tax a.k.a.

FICA or OASDI tax

Employee

Is hired by and works under the control and direction of the employer

Independent contractor

Is paid by the company to carry out a specific task or job, but is not under the direct supervision or control of the company

Checks Written on a Separate Payroll Account

Many businesses write payroll a separate payroll bank account. This is a 2-step process: 1.) A check is drawn on the regular bank account for the total amount of net pay and deposited in the payroll bank account. 2. Individual payroll checks are issued from the payroll bank account.

The Fair Labor Standards Act

Often referred to as the Wage and Hour Law, applies only to firms engaged directly or indirectly in interstate commerce; it sets a minimum hourly rate of pay and maximum hours of work per week to be performed at the regular rate of pay

Social security tax

Pay the retirement and disability benefits

Social Security's Old Age, Survivors, and Disability Insurance (OASDI) program provides the following benefits...

Retirement benefits when a worker reaches the eligible retirement age, Benefits for the dependents of the retired worker, and benefits for the worker and the worker's dependents when the worker is disabled

Exempt employees

Salaried employees who hold supervisory or managerial positions

Payroll register

Shows all the payroll information for the pay period

Federal Unemployment Taxes (FUTA)

Taxes levied by the federal government against employers to benefit unemployed workers

Federal Unemployment taxes (FUTA)

Taxes levied by the federal government against employers to benefit unemployed workers

State Unemployment taxes (SUTA)

The federal and state unemployment programs work together to provide benefits for employees who become unemployed.

State unemployment taxes (SUTA)

The federal and state unemployment programs work together to provide benefits for employees who become unemployed;Employers pay all of the SUTA

Recording Payroll

The general journal entry to record the payroll expense is based on the payroll register. The gross pay is debited to Shipping Wages Expense for the shipping clerks and supervisor and to Office Salaries Expense for the office clerk. Each type of deduction is credited to a separate liability account. Net pay is credited to the liability account, Salaries and Wages Payable.

Time and a half

The overtime rate

Posting to Ledger Accounts

The total of the Salaries and Wages Payable Debit column in the cash payments journal is posted to the Salaries and Wages Payable general ledger account.

Entry to Record Payment of Payroll

The weekly entries in the general journal to record payments to employees debit Salaries and Wages Payable and credit Cash.

Individual earnings record

a.k.a. compensation record, is created for each employee.

The Wage and Hour Law method identifies

overtime premium, the amount the firm could have saved if all the hours were paid at the regular rate

Social security tax

pay the retirement and disability benefits

Overtime premium calculation method 1

rate per hour x 1/2 = overtime premium

Hourly rate basis

workers earn a stated rate per hour. Gross pay depends on the number of hours worked

Salary basis

workers earn an agreed-upon amount for each week, month, and or other period

Commission basis

workers, usually salespeople, earn a percentage of net sales