Payroll Management 2018 Edition Steven M. Bragg
Chapter 1 Payroll Management... 1 Learning Objectives... 1 Introduction... 1 Payroll Cycle Duration... 1 Streamlined Timekeeping... 3 Electronic Payments... 4 Employee Self-Service... 4 Manager Self-Service... 4 Transaction Error Analysis... 5 Staff Training Program... 5 The Payroll Calendar... 6 Information Confidentiality... 7 Chapter Summary... 7 Review Questions... 9 Review Answers... 10 Chapter 2 Definition of an Employee... 11 Learning Objectives... 11 Introduction... 11 The Employee Defined... 11 Employee Withholding Liability... 12 The Independent Contractor Designation... 12 The W-2 Contractor... 13 The Salesperson Designation... 14 Employees of Exempt Organizations... 14 Ministers... 15 Employee Scenarios... 15 People in Business for Themselves... 15 Family Employees... 15 Working Off the Books... 16 Intern Rules... 16 Chapter Summary... 17 Review Questions... 18 Review Answers... 19 Chapter 3 Employee Time Tracking... 21 Learning Objectives... 21 Introduction... 21 Time Tracking Scope... 21 Employee Exclusions... 22 Data Collection Scope... 23 Handwritten Time Sheets... 24 Time Cards... 24 Computerized Time Clocks... 25 Biometric Time Clocks... 27 Web-Based Time Tracking... 27 Smart Phone Time Tracking... 28 Time Keeping Methods Usage Grid... 29 Automated Time Tracking Reminders... 29 Chapter Summary... 29 Review Questions... 30 Review Answers... 31 Chapter 4 Employee Compensation... 33 Learning Objectives... 33 Introduction... 33 i
The Difference between Salaries and Wages... 33 The Workweek... 34 Compensation Definition... 35 Supplemental Wages... 35 Commission Calculations... 36 Commissions Based on Cash Receipts... 37 Final Commission Calculations... 38 Employee Business Expense Reimbursements... 38 Golden Parachute Payments... 39 Hourly Rate Plan... 40 Idle Time... 40 Overtime Pay... 40 Payments in Kind... 41 Piece Rate Pay... 41 Salaries Paid for Partial Periods... 42 Sick Pay... 43 Tips... 43 Vacation Pay... 44 The Minimum Wage... 45 Chapter Summary... 46 Review Questions... 47 Review Answers... 48 Chapter 5 Employee Benefits... 49 Learning Objectives... 49 Introduction... 49 The Provider and Recipient of Benefits... 49 Adoption Assistance... 49 Athletic Facilities... 50 Cell Phones Provided by Employer... 50 De Minimis Benefits... 50 Disability Insurance... 51 Educational Assistance... 51 Employee Discounts... 52 Flexible Spending Accounts... 52 Health Savings Account... 55 Leaves of Absence... 56 Life Insurance... 57 Lodging on Business Premises... 58 Meals... 59 Medical Insurance... 60 Medical Insurance COBRA... 61 Moving Expense Reimbursement... 62 No-Additional-Cost Services... 63 Pension Plans... 64 Defined Contribution Plan... 64 Defined Benefit Plan... 65 Personal Retirement Account... 66 Retirement Planning Services... 67 Stock Options... 67 Stock Purchase Plans... 69 Transportation Benefits... 69 Tuition Reduction... 70 Vacation Benefit Reporting... 70 Workers Compensation Insurance... 71 Working Condition Benefits... 72 Vehicles... 72 Education... 73 ii
Outplacement Services... 73 How to Value Benefits... 73 Cents per Mile... 74 Commuting... 74 Lease Value... 75 Unsafe Conditions Commuting... 76 Rules for Withholding, Depositing, and Reporting Benefits... 77 Benefit Authorization Form... 78 Taxability of Benefits... 79 Chapter Summary... 79 Review Questions... 81 Review Answers... 82 Chapter 6 Payroll Deductions... 83 Learning Objectives... 83 Introduction... 83 Deductions for the Corporate Benefits Package... 83 Deductions for Payments to Third Parties... 85 Charitable Contributions... 85 Garnishments Overview... 86 Child Support Garnishment... 87 Student Loan Garnishment... 87 Tax Garnishment... 87 Union Dues... 89 Deductions for Financing Repayments... 89 The Reduction of Deductions... 90 Garnishment Processing... 91 Deduction Management by Employees... 91 Chapter Summary... 92 Review Questions... 93 Review Answers... 94 Chapter 7 Payroll Taxes... 95 Learning Objectives... 95 Introduction... 95 Income Tax Withholding... 95 Social Security Tax... 98 Medicare Tax... 99 Calculating Withholdings... 100 Wage Bracket Method... 100 Percentage Method... 102 Annualized Wages Method... 102 Average Estimated Wages Method... 105 Cumulative Wages Method... 105 Part-Year Employment Method... 105 Other Methods... 106 Earnings Not Subject to Payroll Taxes... 106 Underwithheld Taxes... 107 Overwithheld Taxes... 107 Employee Taxes Paid by the Employer... 108 The Earned Income Tax Credit... 109 Tax Deductions for the Self-Employed Person... 110 The Common Paymaster Rule... 110 Payroll Taxes for a Successor Employer... 111 Payroll Taxes for Part-Time Employees... 112 State Payroll Taxes... 112 Totalization Agreements... 112 Chapter Summary... 112 Review Questions... 113 iii
Review Answers... 114 Chapter 8 Tax Remittances... 115 Learning Objectives... 115 Introduction... 115 Types of Tax Deposit Schedules... 115 Monthly Deposit Schedule... 116 Semiweekly Deposit Schedule... 116 Federal Unemployment Deposit Schedule... 117 $100,000 Next-Day Deposit Rule... 117 Accuracy of Deposits Rule... 118 Deposits not on Business Days... 118 Remittance Method... 119 The Form 941 Quarterly Federal Tax Return... 119 Form 941 Discrepancies... 124 Prior Period Adjustments... 124 Federal Tax Deposit Penalties... 125 Trust Fund Recovery Penalty... 126 State Tax Remittances... 126 Local Tax Remittances... 127 Chapter Summary... 127 Review Questions... 128 Review Answers... 129 Chapter 9 Unemployment Taxes... 131 Learning Objectives... 131 Introduction... 131 Responsibility for Unemployment Tax Payments... 131 FUTA Tax Calculation... 131 FUTA Tax Deposits... 132 FUTA Tax Payment Timing... 132 FUTA Tax Reporting... 132 State Unemployment Taxes... 134 Unemployment Benefit Claims... 137 Calculation of the State Unemployment Tax Rate... 137 Voluntary Unemployment Contributions... 138 Transferring an Unemployment Experience Rating... 139 Chapter Summary... 139 Review Questions... 140 Review Answers... 141 Chapter 10 Payments to Employees... 143 Learning Objectives... 143 Introduction... 143 Payments with Cash... 143 Payments by Check... 145 Payments by Direct Deposit... 146 Payments by Pay Card... 147 Flexible Spending Account Debit Cards... 147 Unclaimed Wages... 148 Chapter Summary... 148 Review Questions... 149 Review Answers... 150 Chapter 11 Accounting for Payroll... 151 Learning Objectives... 151 Introduction... 151 The Accounting Journal Entry... 151 The Accounting Journal Entry... 151 iv
The Chart of Accounts... 152 The General Ledger... 153 The Payroll Journal... 153 Where to Record Payroll Transactions... 154 Types of Payroll Journal Entries... 155 Primary Payroll Journal Entry... 155 Accrued Wages... 156 Accrued Bonuses... 157 Accrued Commissions... 157 Benefit Payments... 158 Accrued Benefits... 159 Stock Subscriptions... 159 Manual Paycheck Entry... 160 Employee Advances... 161 Accrued Vacation Pay... 161 Tax Deposits... 162 Payroll Information in the Financial Statements Wages... 162 Payroll Information in the Financial Statements Payroll Taxes... 163 Chapter Summary... 163 Review Questions... 164 Review Answers... 165 Chapter 12 Payroll Reports... 167 Learning Objectives... 167 Introduction... 167 Payroll Register... 167 Internal Management Reports... 169 Form W-2... 170 Form W-3... 173 Corrections to Forms W-2 and W-3... 175 Form 1099-MISC... 175 New Hire Reporting... 177 Chapter Summary... 178 Review Questions... 179 Review Answers... 180 Chapter 13 Payroll Recordkeeping... 181 Learning Objectives... 181 Introduction... 181 The Employment Application... 181 The Employer Identification Number... 182 The Social Security Number... 182 Employment Eligibility Verification... 184 The Withholding Allowance... 184 The Personnel File... 189 Mandated Document Retention... 190 Chapter Summary... 191 Review Questions... 192 Review Answers... 193 Chapter 14 Payroll Procedures... 195 Learning Objectives... 195 Introduction... 195 Forms: The Timecard... 195 Forms: The Paycheck and Remittance Advice... 198 Procedure: Add an Employee... 199 Procedure: Timecard Data Collection... 199 Procedure: Commission Calculation... 199 Procedure: Process Payroll... 200 v
Procedure: Issue Payments to Employees... 201 Chapter Summary... 201 Review Questions... 202 Review Answers... 203 Chapter 15 Payroll Controls... 205 Learning Objectives... 205 Introduction... 205 General Controls... 205 Payroll Calculation Controls... 206 Cash Payment Controls... 207 Check Payment Controls... 208 Direct Deposit Controls... 209 Self-Service Controls... 210 Garnishment Controls... 210 Employee Advances Controls... 210 Vacation Pay Controls... 211 Chapter Summary... 211 Review Questions... 213 Review Answers... 214 Chapter 16 Payroll Measurements... 215 Learning Objectives... 215 Introduction... 215 Payroll Entries to Headcount Ratio... 215 Payroll Transaction Error Rate... 216 Form W-2c to Form W-2 Ratio... 217 Proportion of Manual Checks... 217 Outsourced Payroll Cost per Employee... 217 Annualized Compensation per Employee... 218 Net Benefits Cost per Employee... 219 Sales per Person... 220 Profit per Employee... 221 Employee Turnover... 222 Chapter Summary... 223 Review Questions... 224 Review Answers... 225 Chapter 17 The Outsourcing Option... 227 Learning Objectives... 227 Introduction... 227 Overview of Payroll Outsourcing... 227 Reasons to Outsource Payroll... 228 Reasons not to Outsource Payroll... 229 The Outsourced Payroll Contract... 229 The Transition to Payroll Outsourcing... 229 Managing Outsourced Payroll... 230 Measuring Outsourced Payroll... 230 Terminating an Outsourcing Arrangement... 231 Chapter Summary... 231 Review Questions... 233 Review Answers... 234 Appendix 2017 Federal Payroll Tax Calendar... 235 Glossary... 239 Index... 243 vi