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Ministery of education

Claret School

Computerizing Accounting
12° Commerce

Topic
“Payroll”

Teacher:
Amis Herazo

Student
Bonilla Guardia, Orlando Ariel

Delivery Date
Thursday 13 of March, 2013.
Payroll concept

In a company, payroll is the sum of all financial records of salaries for an employee, wages,
bonuses and deductions. In accounting, payroll refers to the amount paid to employees for
services they provided during a certain period of time. Payroll plays a major role in a
company for several reasons.

From an accounting perspective, payroll is crucial because payroll and payroll taxes
considerably affect the net income of most companies and they are subject to laws and
regulations (e.g. in the US payroll is subject to federal and state regulations). From an
ethics in business viewpoint payroll is a critical department as employees are responsive to
payroll errors and irregularities: good employee morale requires payroll to be paid timely
and accurately. The primary mission of the payroll department is to ensure that all
employees are paid accurately and timely with the correct withholdings and deductions, and
to ensure the withholdings and deductions are remitted in a timely manner. This includes
salary payments, tax withholdings, and deductions from a paycheck.

Payroll Taxes

Government agencies at various levels require employers to withhold income taxes from
employees' wages.[1]

In the United States, "payroll taxes" are separate from income taxes, although they are
levied on employers in proportion to salary; the programs they fund include Social
Security, and Medicare. U.S. income and payroll taxes collected through deductions are
considered to be trust fund taxes, because the employer holds the deducted money in trust
for later remittance.

Payroll taxes in United States.

Before considering the payroll taxes we need to talk about the basic formula for the Net
Pay. From gross pay (the salary paid to the employee) one or more deductions are
subtracted, to arrive at Net Pay. Thus the employee's gross pay (pay rate times number of
hours worked, including any overtime) minus payroll tax deductions, minus voluntary
payroll deductions, is equal to Net Pay. Payroll tax deductions play a critical role and
because they are provided by law they are known as Statutory payroll tax deductions.

The employer must withhold payroll taxes from an employee's check and hand them over
to several tax agencies by law. Payroll taxes include the following:

1. Federal income tax withholding, based on withholding tables in "Publication 15,


Employer's Tax Guide"[2] by Internal Revenue Service - IRS;
2. Social Security tax withholding.[3] The employee pays 6.2 percent of the salary or
wage, up to 110,100 (as of 2012). The employer also pays 6.2 percent in Social
Security taxes. If you are self-employed, you pay the combined employee and
employer amount of 12.4 percent in Social Security taxes on your net earnings;
3. Medicare tax.[4] The employee pays 1.45 percent in Medicare taxes on the entire
salary or wage. The employer also pays 1.45 percent in Medicare taxes. If you are
self-employed, you pay the combined employee and employer amount of 2.9
percent in Medicare taxes on your net earnings;
4. State income tax withholding;
5. various local tax withholding, such as city taxes, county taxes, school taxes, state
disability, and unemployment insurance.

References include the following publications:

 Publication 15, (Circular E), Employer's Tax Guide. This publication explains
employer's tax responsibilities. It explains the requirements for withholding,
depositing, reporting, paying, and correcting employment taxes. It explains the
forms any employer must give to its employees, those employees must give to the
employer, and those employer must send to the IRS and SSA (Social Security
Administration). This guide also has tax tables needed to figure the taxes to
withhold from each employee;
 Publication 15 - A, Employer’s Supplemental Tax Guide. This publication
supplements Publication 15 (Circular E), Employer’s Tax Guide. It contains
specialized and detailed employment tax information supplementing the basic
information provided in Publication 15 (Circular E);
 Publication 15-B. Employer's Tax Guide to Fringe Benefits. This publication
supplements Publication 15 (Circular E), Employer’s Tax Guide, and Publication 15
- A, Employer’s Supplemental Tax Guide. This publication contains information
about the employment tax treatment of various types of noncash compensation.

In the earlier part we have considered payroll taxes related to employee's side. Now it's the
moment to talk about the Employer Payroll Taxes Employers are responsible for paying
their portion of payroll taxes. These payroll taxes are an expense over and above the
expense of an employee's gross pay. The employer-portion of payroll taxes include the
following:

1. Social Security taxes (6.2% up to the annual maximum);


2. Medicare taxes (1.45% of wages);
3. Federal unemployment taxes (FUTA);
4. State unemployment taxes (SUTA).

Very often you can hear people using FICA in their terminology. FICA stands for the
Federal Insurance Contributions Act and the FICA tax consists of both Social Security and
Medicare taxes. As we explained earlier both parties pay half of these taxes. Employees pay
half, and employers pay the other half. Social Security and Medicare taxes are paid both by
the employees and the employers. In summary together both halves of the FICA taxes add
up to 15.3 percent.

Any employer is responsible for paying the employer's share of payroll taxes, for
depositing tax withheld from the employees' paychecks, preparing various reconciliation
reports, accounting for the payroll expense through their financial reporting, and filing
payroll tax returns. As you see this suite of employer payroll tax responsibilities is far
above issuing paychecks to employees.

Frequency

Companies typically generate their payrolls at regular intervals, for the benefit of regular
income to their employees. The regularity of the intervals varies from company to
company, and sometimes between job grades within a given company. Common payroll
frequencies include: daily, weekly, bi-weekly/fortnightly (once every two weeks), semi-
monthly (twice per month), and to a somewhat lesser extent, monthly. Less common
payroll frequencies include: 4-weekly (13 times per year), bi-monthly (once every two
months), quarterly (once every 13 weeks), semi-annually (twice per year), and annually
(yearly).

Outsourcing

Businesses may decide to outsource their payroll functions to an outsourcing service like a
Payroll service bureau or a fully managed payroll service. These can normally reduce the
costs involved in having payroll trained employees in-house as well as the costs of systems
and software needed to process a payroll. Where this may reduce the cost for some
companies many will foot a bigger bill to outsource their payroll if they have a special
designed payroll program or payouts for their employees.[citation needed] In many countries,
business payrolls are complicated in that taxes must be filed consistently and accurately to
applicable regulatory agencies. Restaurant payrolls which typically include tip calculations,
deductions, garnishments and other variables, can be difficult to manage especially for new
or small business owners.

In the UK, payroll bureaus will deal with all HM Revenue & Customs inquiries and deal
with employee's queries. Payroll bureaus also produce reports for the businesses' account
department and payslips for the employees and can also make the payments to the
employees if required.

Another reason many businesses outsource is because of the ever increasing complexity of
payroll legislation. Annual changes in tax codes, Pay as you earn (PAYE) and National
Insurance bands as well as statutory payments and deductions having to go through the
payroll often mean there is a lot to keep abreast of in order to maintain compliance with the
current legislation.