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  • I'm Larry Walther, this is principlesofaccounting.com, Chapter 12.

  • And in this module, we will look at the basic accounting for payroll.

  • So, first of all,

  • recognize that many services are provided to a business by other than employees.

  • Payroll and tax record keeping requirements differ, whether someone

  • providing service to a company is an independent contractor, or an employee.

  • An independent contractor performs a designated task, or service for a company.

  • The company has the right to control or

  • direct only the result of the work done by an independent contractor.

  • Conversely, an employee works for a specific business and

  • performs activities as directed by that business.

  • The business controls what will be done, and how it will be done.

  • These subtle definitional differences between an independent contractor and

  • an employee are very important,

  • as they define the relationship between the company and

  • the worker, and who's responsible for various payroll tax obligations.

  • Amounts paid to an independent contractor generally does not involve

  • tax withholdings by the payer, instead,

  • the payer will report the amount of earnings on a Form 1099.

  • That 1099 is provided to both the Internal Revenue Service, as well as the worker.

  • And the independent contractor then becomes responsible for

  • paying payroll taxes, as are associated with their earnings.

  • Amounts paid to employees, however, are usually reduced by variety of taxes and

  • other reductions.

  • Employers may also pay costs related to these deductions.

  • So, we'll look closer at this, but first some terminology.

  • Gross Pay is the total earnings of an employee.

  • Hourly employees would determine their gross pay by

  • looking at the number of hours worked times the hourly rate.

  • Salaried employees may be subject to a flat amount for a period of time.

  • In any event, overtime rules may cause an increase in the pay for

  • either category of employee.

  • Net pay is the gross pay less applicable deductions.

  • So, let's look at a paycheck, here on the top, we've got a paycheck to I.M.

  • Fictitious for $1834, even though their gross earnings was $3000.

  • We have 1834 paid to the employee or the net pay.

  • This is offset by a variety of deductions related to Federal Income Tax,

  • State Income Tax Social Security, Medicare, insurance, retirement plans,

  • charitable contributions, healthcare, child care plans, and so forth.

  • So, you can see there's quite a difference potentially between gross pay and net pay.

  • Let's consider some of these deductions more closely.

  • Income taxes, these are taxes on income that are required to be

  • withheld by federal, and sometimes state, and even city governments.

  • Withheld amounts must be remitted periodically to the government

  • by the employer.

  • In essence, that money that was withheld by the employer from the employee's pay,

  • the employer becomes an agent for the government, and is responsible for

  • collecting that amount,

  • carrying that amount on their liability until it's remitted to the government.

  • The level of withholdings are based upon the employees level of income,

  • the frequency of the pay period, the marital status of the employee, and

  • the number of other withholding allowances that the employee may be entitled to.

  • The employee will claim their withholding allowances by

  • filling out a form W4 at the time they're hired by the employer.

  • Employers who fail to make timely remittances are subject to

  • harsh penalties.

  • This is simply nothing to mess around with.

  • It's not the employers money, it's due to the government.

  • So, the employer needs to make timely remittance to these amounts.

  • The government makes it very easy for

  • the employer to remit the amounts withheld from employee.

  • Most commercial banks are approved to accept the amounts.

  • And there's even online systems that allow very easy transfer of funds for

  • the amounts withheld from employees.

  • The frequency of the required remittance is based upon the size of the employer,

  • and the total amount of the payroll.

  • Social Security and Medicare Taxes are another category of tax,

  • also known as FICA, or Federal Insurance Contributions Act.

  • Tax transfers money to retirees, and

  • certain persons not able to provide for themselves.

  • So, the beneficiaries of these payments are retirees and so forth.

  • Social security provides a modest income stream to beneficiaries.

  • Medicare provides for the healthcare costs of the beneficiary.

  • The social security tax is usually calculated as a percentage of income up to

  • a certain maximum level.

  • If an employees income exceeds the annual limit, the tax ceases to be withheld for

  • that year.

  • It'll start up in the next calendar year.

  • Medicare and Medicaid is subject to a lower percentage tax rate, but

  • it has no annual maximum income limit.

  • It continues up to the full amount earned by the employee.

  • The employee's amount for these taxes, the amount withheld from the employee,

  • the employer has to pay an equal amount to match that, so

  • the full cost of the employee is much higher than simply the gross pay.

  • There are other employee deductions that can relate to healthcare insurance

  • premiums, contributions to retirement programs, charitable contributions, and

  • certain tax-advantaged health and child care savings programs.

  • Employer that collects these amounts from the employees has also a duty, of course,

  • to remit the appropriate entities, such as an insurance company.

  • Okay, here's a payroll journal entry.

  • Here, we've got a gross pay of $3,000 with debiting salary expense, but

  • we're only crediting cash, 1834, the amount remitted to the employee.

  • All of the other items reflect the differences,

  • the various payable federal income tax, payable state income tax,

  • payable social security payable and self-worth.

  • Let's turn to the employer payroll taxes.

  • The social security and Medicare taxes, I've already mentioned, must be matched.

  • Employers are also subject to unemployment taxes,

  • that are levied that the employee never sees.

  • If there's a Federal Unemployment Tax, that's usually a fair nominal rate.

  • The federal government has fairly well delegated this to the states.

  • The State Unemployment Tax can be a higher rate.

  • These taxes provide benefits to unemployed workers who are temporarily

  • unable to find employment.

  • The rates vary by state, and they also are employers specific.

  • An employer that has a very good history of not laying off employees

  • will find themselves over time with a much lower rate than someone who has a history

  • of having workers who they have to let go.

  • So, employers who rarely release employees generally get more favorable rates.

  • The tax stops each year once a maximum amount of income level

  • is reached by employee.

  • Employers may also carry workers compensation insurance,

  • which provides payments to workers who sustain on-the-job injuries, and

  • shields the employer from additional claims.

  • Employers may provide health insurance and bear the cost of that health insurance,

  • as well as make retirement plan contributions.

  • Obviously, the employer's cost of an employee goes well beyond

  • the amount reported on the paycheck.

  • Here's a journal entry now not for the gross pay, but for

  • the additional cost related to the payroll tax.

  • So, I've got payroll tax expense, and

  • other employee benefits expenses being debited.

  • So, if we look at the credits, we're crediting social security payable,

  • Medicare payable, and in this case, I'm assuming that the federal and

  • state unemployment tax bases have already been exceeded.

  • We've got our insurance payable, worker's compensation payable, retirement payables.

  • All of these amounts would in turn be remitted to the appropriate body.

  • Additional reports, shortly after the conclusion of the calendar year,

  • an employer must review its employee records and prepare an annual wage and

  • tax statement, commonly known as a W-2.

  • This information is furnished to the employee and the government,

  • this helps the employee accurately file their own income tax return, and allows

  • the government to verify the amounts that are reported and paid to individuals.

  • An accurate payroll system is important, a business may

  • hire an outside firm that specializes in payroll management and accounting.

  • The outside firm actually manages the payroll, the record keeping, and

  • the actual disbursement of the paycheck.

  • Most firms will set up a separate payroll database that tracks their information

  • about each employee, as well as aggregate information.

  • And indeed, some companies may establish a separate bank account for

  • depositing the gross pay into the account, and then dispersing that

  • out the net pay to the employee, and the other amounts to the various bodies,

  • such as the taxing agency and so forth, so that at the end of the month,

  • you should be able to reconcile that account to essentially a zero balance,

  • showing that the gross pay was disbursed into the account,

  • and then appropriately redisbursed to the appropriate persons.

I'm Larry Walther, this is principlesofaccounting.com, Chapter 12.

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12 - 工資核算 (12 - Accounting for Payroll)

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