Chapter 11 Payroll responsibilities within the accounting dept

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© Family Economics & Financial Education –Revised August 2009– The Essentials to Take Charge of Your Finances – Paychecks AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The

University of Arizona

Chapter 11Payroll responsibilities within

the accounting dept.

Family Economics & Financial Education

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The Payroll Department

• Within the Accounting Department• Employer has the responsibility to pay

each employee a fair, non-discriminated salary

• www.salary.com to find your worth, according to zipcode

• Pay will vary according to Cost of Living – Real Estate prices and Taxes are the major

variable

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Payroll Tax evasionVideo: http://www.myfoxphilly.com/dpp/money/Nifty_Fifties_Tax_Troubles_051612

• The five owners and managers of the Nifty Fifty's restaurant chain have been charged with cheating the IRS out of millions of dollars, the U.S. Attorney's office announced on Wednesday.

• Robert Mattei, 73, of Delray Beach, Florida; Leo McGlynn, 52, of Swarthmore, Pa.; Brian Welsh, 48, of Springfield, Pa.; Joseph Donnelly, 49, of Springfield, Pa.; and Elena Ruiz, 46, of Drexel Hill, PA were charged in connection with an alleged tax evasion conspiracy.

• U.S. Attorney Zane Memeger said the five cheated the Internal Revenue Service by failing to properly account for more than $15 million in gross receipts, thereby evading $2.2 million in federal employment and personal taxes.

• http://abclocal.go.com/wpvi/story?section=news/local&id=8663808

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The Buffet Rule

• Listen:– www.whitehouse.gov/ph

otos-and-video/video/2012/03/31/weekly-address-passing-buffett-rule-so-everyone-pays-their-fair-sh

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Payroll Deductions

• http://www.ehow.com/video_5112528_understanding-payroll-deductions.html

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Some Departments within accounting

1. Auditing2. Payroll

• Benefits Administration: Medical and Retirement

3. Financial Reporting4. Cost 5. Tax6. AP/AR management

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Accounting transactions

• Salary – An Expense of doing business– Gross Pay

• Salary Deductions (optional and required)– Must be electronically deducted before employee

receives paycheck– Liabilities of doing business– Transactions:

• All payables are Credited (deducted from the employee’s paycheck)

• Employer “owes” this money to different agencies/companies• Net Pay – the amount the employee actually takes home

after all deductions are made

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The Debits and Credits

• Gross Salary Expense– DEBITED

• All Payables (deductions)– CREDITED

• Net Pay: Cash– CREDITED

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What are Payroll Taxes?

•Taxes – Required charges imposed on US citizens by local, state, and federal governments

• Used to provide public goods and services– Largest amount of taxes a person

pays is on his/her incomeWhat are some services in your community that are funded by tax

dollars?

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Facts

• On average, approximately 40% of a person’s paycheck will be deducted due to taxes, benefits, and investment choices before they even receive a paycheck

• Taxes- Required charges imposed on citizens by local, state, and federal governments

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Provide public goods and services

Taxes

What is an item or service that you use every day that

is paid for by taxes?

• Citizens pay many different types of taxes in many different ways– Income tax, sales tax, property tax

• Largest amount of taxes is paid on income

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REQUIRED TAX DEDUCTIONS

1. Federal Income Tax1. Based on how much you make2. US gov’t has 6 brackets

2. State Income tax – flat rate based on state3. Local Income tax – flat rate based on township4. FICA (Social Security Tax) – 4.2%

1. For those retired after age 62.5 or legally disabled to work

5. Unemployment tax - .08%1. Goes to those in your state that are unemployed

6. Medicare – 1.45%1. Goes to those in our country who are uninsured,

underinsured, or those retired that are eligible for gov’t aide

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Federal Income TaxBrackets

1. 10% - $0 to $8,375 2. 15% - $8,375 to $34,000 3. 25% - $34,000 to $83,600 4. 28% - $83,600 to $174,400 5. 33% - $171,850 to $373,650 6. 35% - $373,650 and up

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Taxes continued

• Internal Revenue Service (IRS) – Collects federal taxes, issues regulations, and enforces tax laws written by the United States Congress for individuals and private businesses

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OPTIONAL PAYROLL DEDUCTIONS

1. Medical Benefits – health insurance1. Employer responsibility to have a relationship with 1 or

more health insurance companies2. Offer benefits to your employees3. Employer pays a %; the employee pays a % (premium)4. More the employer pays, the greater expense BUT it

could make the employer more desirable/loyalty

2. Retirement Planning –1. Employer offers an investment firm to

withdraw a % of paycheck and invest in the stock market or other investment tool 1. 401K (mutual funds or groups of stocks)2. IRA (retirement account, with interest)• Money is UNTOUCHABLE until age 62.5 (penalty is

20% for early/partial withdrawal)

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Largest Investment firms THAT Employers work with

• Vanguard and Fidelity

• Employee meets with a Financial Advisor to discuss investment strategy and retirement goals at time of Hiring

• Here is the Discussion:– How much should I invested each week from my Gross

Pay?– What stocks/investments/401ks should I invest in?– What is my RISK tolerance?– How long do I plan to work for?– What age would I like to retire at?– How much $ do I want waiting for me when I retire so I

live comfortably?

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How are Taxes Paid?

1. By Workers• Through deductions made from your

Gross Salary by your Employer – Income Taxes

2. By homeowners – Real Estate and School Taxes

3. By shoppers – Sales Tax4. By businesses – their profit is taxed

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Real Estate taxes

• These taxes are separate and not deducted from one’s paycheck

• This is owed once a year by homeowners – check sent to Local Government

• Broken into 2:– Property – based on value of home– School – based on needs of school

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Starting a New Job

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Form W-4

Employee’s Withholding Allowance Certificate– Determines the percentage of gross pay

which will be withheld for taxes

• Allowances– Used to determine the amount of federal

taxes withheld from the paycheck– Dependents lower your taxes!

•Dependent – a person who relies on the taxpayer for financial support

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Form I-9

Employment Eligibility Verification Form• Used to verify the eligibility of individuals

to avoid hiring undocumented workers or others who are not eligible to work in the United States

• Must provide documentation which establishes identity and employment eligibility– Examples include driver’s license, passport,

Social Security card, and birth certificate

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Form I-9Employment Eligibility Verification Form

Verifies the eligibility of individuals to avoid hiring undocumented workers or others

who are not eligible to work in the United States

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Methods for paying employees

1.Live Check

2.Direct Deposit

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Reading a Paycheck

Family Economics & Financial Education

Why is it important to read your paycheck

stub?

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Paycheck Stub

Paycheck Stub– A document included each pay

period which outlines paycheck deductions

On-The-Go

EmployeeBeakens, Joe

SSN201-92-4856

Check #164

Check Amount$1,102.98

Employee Address293 Michael GroveBillings, MT 59102

Pay Type-Gross Pay

Deductions Current Year-to-date

$1,353.33 Federal WithholdingState WithholdingFed OASDI/EE or Social SecurityFed MED/EE or MedicareMedical401K

$106.00$40.82$83.91$19.62$0.00$0.00

$503.46$117.72$636.00$244.92$0.00$0.00

Totals $250.35 $1,502.10

Pay Period 6/11/2009-7/11/2009

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Personal Information

Personal Information– States the employee’s full name, address, and social

security number– Always check to ensure this information is correct

On-The-Go


SSN201-92-4856

Check #164



Pay Type-Gross Pay



$106.00$40.82$83.91$19.62$0.00$0.00

$503.46$117.72$636.00$244.92$0.00$0.00

Totals $250.35 $1,502.10

Pay Period 6/11/2009-7/11/2009

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Pay Period

Pay Period– The length of time for which an employee’s wages are

calculated; most are weekly, bi-weekly, twice a month, or monthly

– The last day of the pay period is not always payday to allow a business to accurately compute wages

On-The-Go


SSN201-92-4856

Check #164



Pay Type-Gross Pay



$106.00$40.82$83.91$19.62$0.00$0.00

$503.46$117.72$636.00$244.92$0.00$0.00

Totals $250.35 $1,502.10

Pay Period 6/11/2009-7/11/2009

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Gross Pay

Gross Pay– The total amount of money earned during a pay period

before deductions• This is calculated by multiplying the number of hours

worked by the hourly rate• If a person is on salary, it is the total salary amount

divided by the specified time period

On-The-Go


SSN201-92-4856

Check #164



Pay Type-Gross Pay



$106.00$40.82$83.91$19.62$0.00$0.00

$503.46$117.72$636.00$244.92$0.00$0.00

Totals $250.35 $1,502.10

Pay Period 6/11/2009-7/11/2009

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Net Pay

Net Pay– The amount of money left after all deductions

have been withheld from the gross pay earned in the pay period

On-The-Go


SSN201-92-4856

Check #164



Pay Type-Gross Pay



$106.00$40.82$83.91$19.62$0.00$0.00

$503.46$117.72$636.00$244.92$0.00$0.00

Totals $250.35 $1,502.10

Pay Period 6/11/2009-7/11/2009

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Deductions

Deductions– The amount of money subtracted from the gross pay

earned for mandatory systematic taxes, employee sponsored medical benefits, and/or retirement benefits

On-The-Go


SSN201-92-4856

Check #164



Pay Type-Gross Pay



$106.00$40.82$83.91$19.62$0.00$0.00

$503.46$117.72$636.00$244.92$0.00$0.00

Totals $250.35 $1,502.10

Pay Period 6/11/2009-7/11/2009

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Year-to-Date

Year-to-Date• Total of all of the deductions which have been withheld

from an individual’s paycheck from January 1 to the last day of the pay period indicated on the paycheck stub

On-The-Go


SSN201-92-4856

Check #164



Pay Type-Gross Pay



$106.00$40.82$83.91$19.62$0.00$0.00

$503.46$117.72$636.00$244.92$0.00$0.00

Totals $250.35 $1,502.10

Pay Period 6/11/2009-7/11/2009

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Conclusion

• Review the following concepts: – Form W-4– Form I-9– Reading a paycheck definitions

• Net vs. gross pay• Required and Optional deductions

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Activity

• Calculating Payroll• Using Excel to calculate payroll and

make deductions– Chapter 11 on website

Documents

Chapter 11 Payroll responsibilities within the accounting dept