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
