7-1. Unit 7 Employee Earnings Records McGraw-Hill/Irwin Copyright 2006 The McGraw-Hill Companies, Inc. All rights reserved

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Unit 7Unit 7

Employee Earnings RecordsEmployee Earnings Records

McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

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Earnings Records Format

The Employee Earnings Record contains:• payroll history of each employee.• personal information

– address– social security number,– marital status– employee withholding allowances

• Pay rate and rate increases• Job title• Voluntary deductions• Date of termination

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

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• Changes in the employee records– Changes in allowances:

• Need a signed W-4, ten days after the effective date of the change.

– Changes in pay/title • Required written authorization from manager/supervisor

– Changes in Voluntary Deductions• Only with written authorization form signed by the

employee


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• The heading is divided into six vertical sections– the ending date of the payroll period,– hours worked, – earnings, – deductions, – net pay, – and year-to-date earnings during the four quarters of the

year.• A single horizontal line is used to record information

for each employee for a payroll period.


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• Government and Employee’s Earnings Records – The employee earnings record also has space for entering

total amounts for each quarter and for the year as a whole. – Federal government forms that need quarterly and annual

records are: • W-2 forms• 1099 forms• 940 (FUTA)• 941 (FICA)


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• Government and Employee’s Earnings Records – quarterly and yearly figures are needed for various

state tax reports.• State unemployment• State Disability Insurance • Workers compensation insurance

– These reports are to be retain by the employers for at least 3 years.


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Earnings Records Entries

• Payroll Register: – provides the information entered in the employee

earnings records at the end of each payroll period:• hours worked, • earnings, • deductions, • and net pay.

– These items are transferred from the payroll register to the individual earnings records.


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Earnings Records Entries


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Near Maximum Taxes

• Social Security Taxes (2005):– Taxable base is the first $87,900. – After the base social security tax is no longer

withheld from the gross earnings or matched by the employer.

• Medicare Taxes (2005):– No taxable base ( all earnings are taxable).


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Near Maximum Taxes

• There are also state taxes that have maximum amounts of taxable earnings.

– Example: • California State Disability Insurance Tax maximum earnings is

$68,829 ( 2004) .– Once a worker earns more than that amount, the SDI tax is no longer

deducted from gross earnings.• Unemployment tax:

– Only the first $7,000 of each employee’s earnings is taxable – Once an employee passes $7,000 in a year, no further unemployment

tax is due for that employee that year.


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Using Employee Earnings Records

• Employee earnings records serve the following important purposes:

– provides information needed for payroll reports– Provides information for Federal, state and local tax returns– provides information needed for income tax withholdings, – provides information needed for Social Security and

Medicare withholdings– Management reports– Helps determine when employees reach the taxable wage

base for each


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Using Employee Earnings Records

• They provide the information about their earnings, deductions and net pay.

• Serve as reference to verify information such:– employee’s contact information,– job title, – date employed


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Care in Making Entries

• Although the process of making entries in the employee earnings record is not difficult, it must be done carefully and accurately.

• Errors can easily occur. – Examples:

• writing an amount in the wrong column, • Transposing figures, • and placing information in the wrong earnings record.


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Internal Controls

• These controls are designed to ensure:– accuracy, – honesty, – efficiency, – and confidentiality.


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Internal Controls

• Internal controls for payroll:– Limit access to payroll records to authorized

personnel. – locked files– records password protected records– set up and enforced confidentiality rules– No new additions without written authorization from

the appropriate manager.


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Internal Controls

• Internal controls for payroll:– manager’s written approval for changes in job titles

or rate of pay – Employee written authorization for:

• changes in marital status, • withholding allowances, • and/or voluntary deductions


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INTERNAL CONTROLS

• Internal controls for payroll (cont.):– Independent internal or external auditor for payroll

records– Separation of duties:

• payroll checking account should not be reconciled by the same person who writes the payroll checks.


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Unit Summary


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Questions?


Documents

7-1. Unit 7 Employee Earnings Records McGraw-Hill/Irwin Copyright 2006 The McGraw-Hill Companies, Inc. All rights reserved