Page 59 - Account for Ag - 2019

CH 10] Payroll Accounting & Payroll Taxes 10-1

CHAPTER TEN: PAYROLL ACCOUNTING & PAYROLL TAXES

Detailed and accurate information regarding employee earnings and contracted labor must be maintained by
employers. In all businesses the amounts due employees are paid at regular intervals: weekly, biweekly, or
monthly. With contract labor, according to the agreed contracted times.
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Employers are required by federal laws to collect certain taxes levied against the earnings of their employees.
They collect the taxes by withholding a portion of the employees' pay. Employers are also subject to federal taxes
levied upon the amount of their payroll. In addition, many employers are required to pay state payroll taxes, and in
some states and cities they are required to collect other taxes levied upon the earnings of their employees. All of
these federal, state, and city payroll taxes must be paid and detailed reports must be submitted at prescribed
intervals.

Employers frequently obligate themselves to withhold specified sums from employees' earnings for the
payment of union dues, insurance premiums, or charitable contributions. They may also, at the request of the
employee, make payroll deductions for the purchase of federal bonds. Many employers protect their workers
against complete loss of income resulting from accidents while on the job. The premiums on this insurance, called
workman's compensation insurance, are based in part on payroll information. This brief recital of some of the
requirements and customary practices is evidence of the need for accurate and complete payroll records.

FORMS OF REMUNERATION
The term salary is usually applied to payment for managerial, administrative, or similar services. The rate of
salary is ordinarily expressed in terms of a month or a year. Remuneration for manual labor, both skilled and
unskilled, is commonly referred to as wages and is stated on an hourly, weekly, or piecework basis. In practice, the
terms salary and wages are often used interchangeably. Other designations commonly employed are commissions,
bonuses, profit sharing, and cost-of-living adjustments. Although remuneration is usually paid in money, payment
may be in other forms such as housing, sides of beef, meals, securities, etcetera.

EMPLOYER-EMPLOYEE RELATIONSHIP
Not all persons who perform services for a business are classified as employees. The relationship of employer
and employee generally exists when the person for whom the services are performed has the right to control and
direct the individual in the performance of his services. Thus, a sales clerk in a retail store and a bookkeeper in an
office are clearly employees. On the other hand, a public accountant engaged to audit the accounting records of a
business chooses his own means of performing his services and is not subject to the control and guidance of his
client. He is an independent contractor rather than an employee. Similarly, a lawyer retained to negotiate a
contract or defend a lawsuit is an independent contractor. Other examples of independent contractors are
architects, and physicians.

Remuneration paid to independent contractors is frequently termed a fee rather than salary or wages. In any
event, such payments are not subject to the various payroll taxes and should not be included in the payroll.

COMPUTATION OF EARNINGS
The earnings of each employee for each pay period are usually calculated by multiplying the time worked
during the period by the agreed rate per hour, week, month, or other time-pay period.

8 hours x $6.50/hour = $52.00

In some cases, earnings are the product of the units of work completed times the rate per unit or piece. The
earnings of pickers and packers are sometimes calculated by multiplying their boxes by a certain agreed rate and
adding this to a base wage. The earnings of sales people are sometimes calculated by multiplying their sales for
the period by an agreed percentage.

wage: 8 hours x $6.50 = $52.00
Plus piece rate 570 boxes x $ 0.05/box = + 28.50
$ 80.50
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