5.02 Payroll

   Multiply hours worked up to 40 by hourly rate of pay.

Calculate regular earnings. 

   If hours are over 40 per week, overtime earnings must be calculated.

Calculate employee hours

Preparing and Recording a Payroll

Calculating Earnings

• If hours are over 40, calculate overtime earnings.  Multiply hours over 40 by hourly pay rate times 1 ½.

• Calculate total earnings by adding regular earnings and overtime earnings.

4.    State income tax withholding (use state rate or state tax tables)

5.    Other deductions – some employers will have other deductions such as health insurance, etc.

1.    Social Security tax withholding (multiply

total earnings by 6.2%)

2.    Medicare tax withholding (multiply total

earnings by 1.45%)

3.    Federal income tax withholding (use

federal tax tables)

Calculate deductions

A.      Calculate total deductions.  (Add all deductions together).

B.      Calculate net pay.  (Subtract total deductions from total earnings).

C.     Prepare payroll checks.  (Write checks for net pay amount.)

Calculate deductions

A.      Credit Cash for the total net pay amount.

B.      Post the entry to the appropriate general ledger accounts.

A.      Total all columns of the Payroll Register.  Prove register by checking totals across for accuracy.

B.      Debit Salary Expense for the total earnings amount.

C.     Credit appropriate liability accounts for the deductions.

1.    Credit Social Security Tax Payable for the total Social Security tax withholding.

2.    Credit Medicare Tax Payable for the total Medicare tax withholding.

3.    Credit Federal Income Tax Payable for the total federal income tax withholding.

Journalizing a Payroll