 If you were the owner of a small business, how much would you pay
your workers to work overtime? Why?
 What are some methods you would take to keep track of hours
worked by employees?
 Payrollin'
Chapter 12
 Many businesses pay employees for number of hours each employee has worked
 Salary: money paid for employee services
 Pay period: period covered by a salary payment
 Employees paid every week, every two weeks, twice per month, or once per month
 Usually paid on the 15th and last day of each month
 Payroll: total amount earned by all employees for a pay period
 Reduced by state and federal taxes and other deductions, such as health insurance
 Used to prepare payroll reports for the government
 Time cards used by those who aren’t paid a salary
 Requires employees to record total hours worked each day by checking in at arrival and
departure
 Page 341 shows example of time card
 Rounded to nearest quarter-hour
 Total earnings: total pay due for pay period before deductions
 Also referred to as gross pay/gross earnings
 Overtime pay includes “time-and-a-half”
 Hourly wage x 1.5
 Add to regular work day compensation to receive total compensation for day
 Practice:
 Complete WT 12-1
 Complete OYO12-2
 Be prepared to review answers
 How some view Social Security...
 Payroll taxes: taxes based on payroll of a business
 Businesses required by law to withhold payroll taxes from employee salaries
 Federal and state governments charge businesses penalties for failure to pay
correct payroll taxes when due
 Payroll taxes represent liability for employer until payment is made to government
 Amount of income tax withheld is identified on Form W-4, Employer’s Withholding
Allowance Certificate
 Withholding allowance: deduction from total earnings for each person legally supported
by taxpayer, including employee
 Employers hold W-4 for each employee
 Larger number of withholding allowances claimed, smaller amount of income tax
withheld
 Turn & Talk: Why would married individuals or those with children be taxed less than
those without any dependents or spouse?
 Exemption from withholding available for some low-income and part-time
employees
 Cannot claim exemption if:
1.
2.
Income exceeds $750 and includes more than $250 unearned income
Another person can claim them as a dependent on their tax return
 IRS tables – pages 347 - 348
 Federal Insurance Contributions Act (FICA) provides for federal system of old-age,
survivors, disability, and hospital insurance
 Social security tax: federal tax paid for old-age, survivors, and disability insurance
 Calculated on employee earnings up to maximum paid in calendar year
 tax base: maximum amount of earnings on which tax is calculated
 $87,000 for Social Security Tax, as 6.2%
 Medicare tax: federal tax paid for hospital insurance
 Not tax base exists here
 Calculate don total employee earnings, at a rate of 1.45%
 Practice:
 Complete WT 12-2
 Complete OYO 12-2
 Be ready to review answers
 Why do you think taxes would be higher in some
states than others?
 Think about the use of tax dollars paid to the
government…
 In your notebooks:
 What is the sole purpose of savings accounts?
 What is the sole purpose of checking accounts?
 Do you have a checking account? If so, how do you deposit money into your
account?
 3 stations
 3-4 people each station
 Team rotates after 2 minutes
 Station 1:What is the difference between gross pay and net pay? What does it
mean when something is “tax-deductible”?
 Station 2:What is direct deposit? How is it more efficient than using paper checks?
 Station 3: If you owned a business, what methods would you use to keep track of
how much each employee has earned during employment with your business?
 Payroll register: business form used to record payroll information
 Shows total earnings, payroll withholdings, and net pay of all employees
 Net pay: total earnings paid to employee after payroll taxes and other deductions
 Employee earnings record: business form used to record details affecting
payments made to employee
 Business must send quarterly report to federal and state governments showing employee
taxable earnings
 New earnings record prepared for each employee each quarter
 Look Familiar?
 Total earnings, not net pay, are added to previous accumulated earnings amount
on earnings record
 Total earnings is amount compared to tax base to determine whether social
security taxes should be withheld
 Other column represents amount voluntarily taken from paychecks by employees
 Charitable contributions
 Savings/investments
In pairs:
 Complete 12-3 Work Together
 Complete 12-3 On Your Own
Check written
for total net pay,
which is taken
out of general
checking
account
Net pay amount
deposited into
special payroll
checking
account
Individual
checks written to
employees from
special payroll
checking
account
 Amount of check is total Net Pay column of payroll register (excel)
 Check payable to Payroll Account #, the business’ special payroll checking account
(given in problem to you)
 Payment for payroll period is the given two-week period (given in problem to you)
 Using separate checking account for payroll checks provides internal control and
helps prevent fraud
 Information used to prepare payroll
checks is taken from payroll register
(excel)
 Special payroll check form used that
has detachable stub for recording
earnings and amounts deducted (in
WP, similar to chapter 5)
 Employees keep stubs for record of
deductions and cash received
 Read the following article
 As you do so, write down pros and cons to direct
deposit with your partner
 Electronic funds transfer (ETF): computerized cash payments system that transfers
funds without use of checks, currency, or other paper documents
 Today, most businesses deposit employee net pay directly to each employee bank
account using ETF
 Payroll must still be calculated, but individual checks are not written and do not
have to be distributed
 Each employee receives statement of earnings and deductions similar to
detachable stub on payroll check
In pairs:
 Complete 12-4 Work Together
 Complete 12-4 On Your Own
 If/when you have a part-time job, will you be more likely to use direct
deposit via EFT, or are you more comfortable receiving a paper
check?
 Why or why not?