Ch 12: Payroll Accounting

Ms. Alltucker

Accounting II

Ch 12: Section 1: Calculating Gross Earnings What you’ll learn:

The importance of accurate payroll records. How to calculate gross earnings

Why it’s important: For many businesses payroll is the largest

expense. It is essential that the payroll system accurately determine the gross pay for each employee for every pay period.

The importance of Payroll Records Payroll list of the employees and the

payments due to each employee for a specific pay period Biggest expense for most companies Most companies set up a payroll system for

recording and reporting employee earnings information

Payroll system goals: 1. The collection and processing of all the information

needed to prepare and issue payroll checks 2. The generation of payroll records needed for

accounting purposes and for reporting to government agencies, mgmt

Often operated by a payroll clerk

Payroll Records Payroll clerk

Makes sure employees are paid on time Makes sure each employee is paid the correct

amount Completes payroll records Submits payroll reports Pays payroll taxes

Payroll Records

Computing Gross Pay Gross Pay the total amount of money an

employee earns in a pay period Can be based on:

Salary Hourly wage Commission Salary plus commission or bonus Overtime pay

Also called salary expense

Computing Gross Pay Salary

Fixed amount of money paid to an employee for each pay period

Generally paid to managers and/or supervisors Earns the same amount regardless of the number

of hours worked during the pay period Hourly wage

Amount of money paid to an employee at a specified rate per hour worked

Hours worked X hourly wage = gross earnings 40 hours X $10.00 = $400 gross earning

Computing Gross Pay Hourly wage

Many employees required to keep time cards of hours worked during a given pay period

Divide the hour into 15 minute quarters for measuring work time

Quarter Hour Example On the hour 2:00 pm 15 mins after the hour 2:15 pm 30 mins after the hour 2:30 pm 45 mins after the hour 2:45 pm

Employees seldom arrive and leave exactly on the quarter hour Round the hours to the nearest quarter hour

Computing Gross Pay Commission amount paid to an employee

based on a percentage of the employee’s sales Incentive to employees to increase sales

Example: Joyce Torrez is paid a 5% commission on all her

sales Sales = $8,254 8254 X .05 = $412.70 gross earnings

Computing Gross Pay Salary plus commission or bonus

Earn a base salary plus a commission or bonus on the amount of the sales

Example: Weekly salary= $200 plus 3% commission on sales

Weekly sales: $4,810 200 + (4810 X .03) = $344

Computing Gross Pay Overtime Pay

State and federal laws regulate the number of hours some employees may work in a week

40 hours/week Overtime = hours work above and beyond 40

hours a week Overtime rate = 1.5 times the employee’s regular

hourly pay rate Example: Jesse worked 43 hours last week at an

hourly rate of $6.60. What is his overtime rate? What is his gross earnings?

Computing Gross Pay Overtime pay 6.60 X 1.5 = $9.90 (overtime rate)

Hours Rate 40 (regular) X 6.60 = $264.00 3 (overtime) X 9.90 = 29.70 $ 293.70

Thinking Critically List two goals a payroll system should

achieve.

How does an electronic badge reader record the correct arrival and departure time?

Do problems 12-1 and 12-5