Chapter 10 lecture notes
This chapter explains the payroll process. There are several federal laws
affecting payroll, one of which is the federal Wage and Hour law which limits
the number of hours an employee can work; when an employee works more
than 40 hours a week they must be paid time and a half (current salary x 1.5)
for the additional hours. There are also laws requiring an employer to
withhold at least three taxes from the employees pay, and match the social
security and Medicare. It is important to note that only the first $90,000
in earnings is subject to social security tax.
When withholding taxes from employees, the money is put in a “payable”
account because it is a liability; this is not money that belongs to the
business, but money that will be paid to the government. The gross pay is
debited to a general salary expense or office wages expense account (these
will have different names, but follow the general rule of a wage expense
account); the amount that will be paid to the employee in cash will be
credited to a salary payable account and each individual tax will have its own
payable account as well. The amount debited to salary expense will be equal
to all the payables (salary payable, Medicare tax payable, etc…) added
together … remember, debits = credits.
It is important to maintain thorough records and keep an earnings record
for each employee. At the end of the year the business must provide
reports which show gross earnings and total deductions for each employee.