Purpose: The purpose of this handout is to describe various pertinent issues related to the payroll process.
Be familiar with important payroll laws:
The Fair Labor Standards Act of 1938
Federal Insurance Contribution Act
Federal Unemployment Tax Act
Be able to calculate an employee’s
gross pay under different situations:
·
Regular pay
·
Regular pay with overtime
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Salary
·
Commission
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Piece rate
Be able to
calculate common taxes and withholdings to come up with net pay:
·
Federal withholding using Circular E
·
State withholding using a straight percentage
·
FICA – Social Security and Medicare
·
Optional deductions
Be able to calculate employer taxes if rates and ceilings or maximums are given:
Social Security and Medicare (matching portions)
FUTA
SUTA
Be able to record a basic payroll journal entry based on
a completed payroll register
Be familiar with worker's compensation insurance and how it is recorded and paid.
Coverage will be limited. I do not expect you to memorize any rates, due dates. The focus of material on text will be calculation of gross pay, payroll deductions and net pay. In addition, you will be tested on your ability to record a basic payroll journal entry and a basic payroll tax journal entry.
BUSA
10
Payroll Overview
The Employee
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The Employer
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The person that performs the work functions for the
employer for pay.
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The one
that hires and pays the workers.
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The employee
pays: Social Security Medicare
Together these are FICA Federal Income Tax State Income Tax, depending on state you live in Other Optional deductions such as:
Charitable contributions, union dues, uniforms,
savings bonds, garnishments, etc.
All of these amounts are paid by the employee through
payroll withholdings. The
amounts are withheld from the employee’s paycheck and submitted to the
proper agency by the employer. These
come out of your
check.
They represent liabilities on the employer’s books. |
The employer
pays: Social Security Medicare Federal Unemployment (FUTA) State Unemployment (SUTA)
The sum of these four items represents the employer’s
tax expense. Note that the
social security and Medicare paid by the employer are matching portions
and equal the amount paid by the employee. |
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What
you should concentrate on: |
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Calculating
Gross Pay
Calculating Deductions Calculating Net Pay Completing a payroll register Recording the payroll JE Terms and definitions |
Calculating the employers FICA Recording the payroll tax JE Terms and Definitions |
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You will not be expected to memorize any tax rates or any
dates. Tax rates and
limitations or ceiling amounts will be provided to you, if they are
needed.
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Some Important Terms
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Form W-4 Form W-2 Exemption (Withholding allowance) FICA Gross Pay Net Pay Payroll register Taxable earnings Circular E |
FUTA SUTA Form W-3 Payroll Tax Expense Worker’s Comp |
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BUSA
10
The
Journal Entries for Payroll
The
journal entries are not that difficult. For
a good summary of the various entries, refer to your text.
To record the regular payroll,
take the totals from the completed payroll register and make sure you do the
following:
·
Record the Gross Pay using Wages or Salaries Expense
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Record all of the deductions in the appropriate liability
accounts
·
Record the net pay in the wages or salaries payable account
·
Make sure the debits equal the credits
When the payroll checks are actually issued to the
employees, debit the wages payable and credit cash.
To record the actual payment of the various taxes and other
deductions, simply debit the liabilities and credit the cash.
To record the actual payment of the various taxes and other
deductions, simply debit the liabilities and credit the cash.
To record the employer’s tax
expense,
remember to do the following:
Debit Payroll Tax Expense for the sum of the four taxes
Credit the following accounts for the amounts payable:
·
Social Security Payable
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Medicare Payable
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FUTA Payable
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SUTA Payable