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Objectives of Payroll Records and
- employer is required to keep records of the following information:
1.Personal data on employee.
2.Data on wage payments.
3.Amount of taxable wages paid.
- 4.Amount of tax withheld from each
- employee’s earnings by pay period.
the total amount of an employee’s pay before deductions.
the take-home pay
An employee is
one who is under the direction and control of the employer.
engaged for a definite job or service and may choose his or her own means of doing the work.
The Fair Labor Standards Act of 1938
provides for minimum standards for both wages and overtime.
Tax Payment Act of
- requires employers to withhold the tax,
- then pay it to the U.S. Treasury
- AND also to keep records of the names and addresses of persons employed.
Social Security Act of 1935 (FICA)
began as an attempt to provide retired workers with benefits based upon their work history.
Currently, FICA consists of
§Social Security and Medicare. For Social Security, employees contribute 6.2 percent on the first $106,800 earned in a calendar year.
1.45 percent on all earnings in a calendar year with no limit for Medicare.
Laws Affecting Employer’s Payroll Tax Contributions
- The employer has to match the amount of
- FICA taxes withheld from the employee’s wages, and this amount is recorded by debiting Payroll Tax Expense.
Each state is responsible for paying its own state unemployment tax. This tax is paid by employers only at the rate of 5.4 percent on the first $7,000 earned by each employee.
The Federal Unemployment Tax Act is to provide financial support for the maintenance of government-run employment offices. This tax is paid only by employers only. The rate is 0.8 percent of the first $7,000 of earnings.
Workers’ compensation laws protect employees and their dependents against losses due to death or injury incurred on the job.
following table presents a summary of the various payroll taxes and who is
responsible for each:
How Employees Get Paid
Money paid to a person for managerial or administrative services is usually called a salary, and the time period covered is generally a month or a year.
- Money paid for either skilled or unskilled labor is usually called wages, and the time
- period covered is hours or weeks.
- A company may also supplement an employee’s salary or wage by other benefits such as commissions, bonuses,
- cost-of-living adjustments, and profit
- sharing plans.
Workers under the piece-rate system are paid at the rate of so much per unit of production.
If John Joseph, a strawberry picker, is paid $3 for each box of strawberries picked, how much would he earn if he picked 24 boxes?
24 x $3 = $72
Common Deductions from Total
1.Federal income tax withholding
2.State income tax withholding
3.FICA taxes (Social Security and Medicare), employee’s share
5.Medical insurance premiums and medical expenses under a flexible spending plan
6.Contributions to charitable organizations
7.Repayment of personal loans from the company.
8.Savings through the company 401(k) plan
9.Dependent care expenses under a flexible spending plan (subject to a $5,000 limit)
Employees’ Federal Income Tax Withholding
- §Employers are required to withhold
- employees’ taxes and then pay them to the U.S. Treasury.
- §Employers have to keep records of the
- names and addresses of persons employed.
- §A withholding allowance is an amount of an individual’s earnings
- that is exempt from income taxes.
- §Each employee has to fill out an Employee’s
- Withholding Allowance Certificate (Form W-4).
Publication 15 (Circular E),
Employer’s Tax Guide and Publication 15-T
- §Publication 15 (Circular E) contains the
- rules for depositing federal income, Social Security, and Medicare taxes.
- §Publication 15-T contains the withholding
- tables for these taxes.
- §Both publications are provided free of
- charge by the Internal Revenue Service.
Employees’ Federal Income Tax
§The payroll register is a manual or computerized schedule prepared for each payroll period listing the earnings, deductions, and net pay for each employee.
Analysis of Payroll Register
The Payroll Entry
- §Because the payroll register summarizes
- the payroll data for the period, it is used as the basis for recording the
- payroll in the ledger accounts.
- §The accountant records the total cost to
- the company for services of employees as debits to the Wages
- Expense accounts.
- §Total Social Security tax deductions and
- total Medicare tax deductions are combined to become FICA
- Taxes Payable.