Accounting
Chapter 13
SALARY | PAY PERIOD | PAYROLL
Payroll is reduced by taxes and other deductions
Section 1
o Payroll systems must include an accurate record of the time each employee
works
o Time cards are used as the basic source of information to prepare a payroll
o Prepare a Payroll
o Calculate regular hours (to nearest hour)
o Calculate overtime hours
o Add regular and overtime and enter total
o Add hours column
Total Earnings (A.K.A. gross pay/gross earnings)
1. Enter regular time rate and multiply by the number of hours worked
2. Enter overtime rate (usually 1 regular pay) and multiply
3. Add regular pay to overtime pay to get total earnings
Section 2
Payroll Taxes
o Required by law to withhold certain payroll taxes from employee salaries
o Payroll taxes withheld are a liability for the employer until paid to government
o A business has to withhold federal income tax and state or local
Withholding Alowance
o Information used to figure amount of income tax withheld is on the Form
W-4, Employee’s Withholding Allowance Certificate
o The larger number of withholding allowance claimed, the smaller the
amount of income tax withheld
o An exemption from withholding is available for certain low-income and
part-time employees
o Individuals can NOT claim exemption if: their income exceeds $700 and
includes unearned income or if another person can claim them as a
dependent
o Withholding Certificate Preparations
o Name and address
o SSN
o Marital status
o Withholding allowance
o Sign and date
o Amount of federal income tax withheld from paycheck is based on
withholding tables created by IRS- tables for all payroll periods and
marital status
o What should be withheld?
o Select right table
o Locate earnings between the “At Least“ and “But Less Than”
columns
o Follow line across to column headed by the employees number of
withholding allowance
o Federal Insurance Contribution Act (FICA) provides a federal system of
old-age, survivors, disability, and hospital insurance
Social Security Tax | Medicare Tax
o Social Security and Medicare Taxes both paid by employee and employer
(matching sums)
o Social Security Tax is calculated on employee earnings up to a maximum paid
in a calendar year
o Tax base-Congress sets tax base and tax rates
o Total earnings x Social Security Tax Rate = Social Security Tax Deduction
o Medicare does not have a tax base-calculated on total employee earnings
o Total earnings x Medicare Tax Rate = Medicare Tax Deduction
Section 3
Payroll Register
o Summarizes payroll for one pay period and shows total earnings, payroll
withholding, and net pay of all employees
o See page 322 and 323 for steps to preparing a payroll register
Net Pay
o A business must send a quarterly report to federal and state governments
showing employee taxable earnings and taxes withheld
Employee Earnings Record
o See page 325 for steps to preparing an employee earnings record
o Add total earnings to accumulated earnings- NOT net pay
Section 4
o Often have a separate checking account for payrolls check marks
o Helps prevent check altering
o Preparing a check for total net pay-amount of all pay checks
o Preparing an employee payroll check-information from payroll register
o Each check has a stub that details deductions and cash received
o Electronic funds transfer: a computerized cash payment system that uses
electronic impulses to transfer funds