Timeframe: 6+2 Days
Student Handout and Activities
Additional Activities will be Uploaded into Schoology
5.1 Interpret a pay stub
5.2 Explain the nature of payroll expenses
5.3 Maintain employee earnings records
5.4 Calculate employee earnings
5.5 Calculate employee deductions
5.6 Calculate payroll taxes
Unit Assessment:
Objectives:
a. Define the following terms: pay period, gross income, net income, deduction, pension, 401(k), and FICA.b. Explain the components of a pay stub.c. Identify types of deductions that appear on pay stubs.d. Discuss reasons for interpreting a pay stub.e. Explain procedures for interpreting a pay stub.f. Demonstrate how to interpret a pay stub.Activity:
Take a look that printout of a paycheck on the Student Handout Activity 5.1. Record your findings on the worksheet entitled The Long and The Short of It
Ethics Case for Students:
You recently began a new job as a part-time retail associate after school. You need the income to help pay for gas money and insurance now that you have your own car. When you receive your first pay-check you realize that you were payed for 25 hours of work – even though you only worked 20 hours that week. You could really use the extra money, but you know your employer made a mistake. What should you do?
Pay Stubs—Discussion Guide
Slide 1: THINK ABOUT IT
Whether you are an accountant managing the books for a large company or an employee managing your personal finances, you’ll need to know what information is contained in a pay stub.
KEY CONCEPTS
Slide #2 A pay stub is a document that is included with an employee’s paycheck that contains detailed information on that employee’s pay.
While the contents can vary greatly, most pay stubs include:
Slide #3 Knowing how to interpret a pay stub will help in processing employee information quickly and accurately.
If, for example, an employee needs to be paid for a partial pay period, the information contained in a previous pay stub will help determine how much should be paid.Interpreting the information on pay stubs can also help in checking for errors or inaccuracies in the payroll system.Objectives:
a. Define the terms: withholding, garnishment, payroll register, payroll administration, and payroll processor. b. Discuss the purpose of IRS Form W-4. c. Discuss the process for calculating payroll tax withholding (e.g., federal, state, local, social security, and Medicare). d. Discuss the process for calculating employer payroll tax obligations (e.g., Social Security, Medicare, FUTA, SUTA). e. Discuss other payroll obligations of employers (e.g., worker’s compensation).f. Explain the impact of employee-paid and employer-paid payroll taxes and payroll-related expenses on business operations.Activity:
In teams or individually develop a brochure about different types of payroll expenses and obligations that could be shared with small-business owners. Here is a Lucid Press template to get you started. 5.2
Payroll Expenses—Discussion Guide
Slide #1 THINK ABOUT IT
There are many aspects of employee pay that don’t always show up on a pay stub. Establishing and managing a payroll system requires staying up to date about a number of employer obligations.
KEY CONCEPTS
Slide #2 The entire process of managing employee compensation, including recording pay rates and hours worked, calculating payroll deductions, and issuing pay, is called payroll administration.
Payroll is the total amount of money paid by an employer to all of its employees during a single pay period.All of the information related to a company’s payroll appears in a report called the payroll register.Tax withholdings are only one type of deduction managed by the payroll processor.
Slide #2 Employers are also responsible for certain payroll taxes and expenses.
For example, employers must match the taxes paid by their employees to Social Security and Medicare in addition to paying federal unemployment tax (FUTA) and state unemployment tax (SUTA).Employers are also required to pay for workers’ compensation insurance that protects the company and its employees from lost work and wages due to any injuries that occur on the job.Activity:
Locate and share examples of payroll source documents. Write a paragraph in which you describe the system that you believe would be best for storing these files appropriately. Work to address questions such as these: 1. Would the system be physical or digital? 2. Would they store the payroll source documents with other personnel files or separate? 3. What factors would influence their decisions? 4. When finished, lead the class in a discussion of their recommendations.
Payroll Source Documents—Discussion Guide
Slide #1 THINK ABOUT IT
An important part of payroll administration is the maintenance and storage of payroll documents. Maintaining these documents is not only important; in some cases, it’s required by law!
KEY CONCEPTS
Slide #2 Payroll source documents, sometimes called employee earnings records, contain information used to calculate the earnings and payroll deductions for employees. The most common are time cards, time sheets, and tax forms.
A time card is a document on which employees record the times that they begin and end work each day.
The information contained on tax forms (such as the IRS Form W-4) helps the payroll processor determine how much should be deducted in tax withholdings from an employee’s gross pay.
Other payroll source documents such as tips and commissions reports might also be collected and used in calculating earnings.
Once these documents have been collected, they should be organized and stored to ensure their safe keeping, with the documents pertaining to each employee in a separate folder or file.
Slide #3 Keeping payroll documents in a well-organized system is crucial for good bookkeeping and payroll administration.
Not only should these documents be readily searchable, but they should also be well maintained for privacy reasons.Federal law requires that companies keep payroll records for at least three years.
For more information on maintaining employee records, click here: https://www.dummies.com/business/operations-management/how-to-maintain-employee-records/.
Activity:
Ask students to calculate gross pay for the following employees for a single pay period. When they are finished, review their findings. Answers are provided.
Ezra earns a salary of $44,400/yr. as an executive assistant. He is paid twice per month. $44,400 / 24 pay periods = $1,850.00 gross pay
Tonya earns $30.00/hr. as a graphic designer. She is paid every two weeks. In this pay period, she worked 40 hours one week and 42 hours the second week. Her overtime premium is 1.5x. ($30.00/hr. x 40 hrs.) + (($30.00/hr. x 40 hrs.) + (($30.00/hr. x 1.5) x 2 hrs.)) = $2,490.00 gross pay
Adam is a barista. He makes $12.00/hr. and worked 35 hours each week during a two-week pay period. ($12.00/hr. x 35 hrs.) + ($12.00/hr. x 35 hrs.) = $840 gross pay]
Raj is the Sales Director of a marketing company. He is paid every two weeks and his annual salary is $89,500. During this pay period, he worked a total of 90 hours. $89,500/yr. / 26 pay periods = $3442.31 gross pay
Employee Earnings—Discussion Guide
Slide #1 THINK ABOUT IT
There are a number of ways that employees are compensated for their work. Each method for earning compensation requires a different payroll calculation.
KEY CONCEPTS
Slide #2 The two most common types of employee compensation are wages and salary.
A wage is an amount of money earned by an employee that is based on units of time spent working.
A salary is an amount of money that an employer agrees to pay an employee to work for an agreed upon length of time and is usually paid at specific intervals.
In some industries, such as retail, wage-earners can also make commission. Although there are exceptions, tips are rarely an option for salaried employees, however.
Slide #3 The methods for calculating employee earnings vary depending on the type of compensation.
For hourly wages, you will need the employee’s pay rate and earnings records, such as timesheets or time cards.
Here is an example of an earnings calculation for an hourly wage employee with a regular wage of $15.00/hr. who worked 44 hours in a week:
For more information on calculating wages, click here: https://www.thebalancesmb.com/what-is-gross-pay-and-how-is-it-calculated-398696.
To calculate earnings for salaried employees, take the annual salary and divide by the amount of intervals or pay periods in a year.Once you have calculated an employee’s gross pay, subtract deductions to arrive at her/his net pay. You will learn how to calculate these deductions in the next lesson.
Discussion #1: Ask students to discuss the advantages and disadvantages of being paid 24 times per year and 26 times per year.
Objectives:
a. Explain types of payroll deductions.b. Discuss the impact of pre tax deductions.c. Demonstrate techniques for calculating employee deductions.Activity:
Ask students to calculate how much FICA tax to withhold from the gross pay of each of these employees. When they are finished, review their findings. Answers are provided.
Justin has earned an annual gross pay of $62,182.36. He has chosen to make contributions totaling $2,500.00 to his 401(k) for the year.
($62,182.36 - $2,500) x (6.2% + 1.45%) = $4,565.70 total FICA tax
Maria’s annual salary is $168,200. She chooses not to have retirement contributions taken out of her paychecks.
($132,900 x 6.2%) + ($168,200 x 1.45%) = $10,678.70 total FICA tax
Kim’s salary is $82,000/yr. Each year, she contributes $8,000 to her 401(k). She chooses to donate an additional $500 to charity.
($82,000 - $8,000) x (6.2% + 1.45%) = $5,661.00 total FICA tax
Employee Payroll Deductions—Discussion Guide
Slide #1 THINK ABOUT IT
After calculating each employee’s gross pay, the payroll administrator must calculate all deductions. Once these are subtracted from the gross pay, the result will be the amount of net pay that will appear on the employee’s paycheck.
KEY CONCEPTS
Slide #2 A payroll deduction is any amount of money subtracted from an employee’s earnings (gross pay) and set aside for another purpose.
Some payroll deductions are voluntary (chosen by the employee) and some are not.
The most common types of payroll deductions are:
It is the responsibility of the payroll administrator to calculate and deduct these amounts and deliver them to the appropriate entity.
Slide #3 Some deductions are calculated pre-tax, which simply means that these amounts are calculated and set aside before taxes are calculated and withheld.
Pre-tax deductions decrease the amount of taxable earnings, thereby decreasing the total amount of tax dollars withheld.
Not all deductions are set aside pre-tax, however.
Examples of pre-tax deductions are:
Slide #4 Tax withholdings are payroll deductions that are set aside for the payment of taxes.
These are calculated after all pre-tax deductions have already been subtracted from the employee’s gross pay.
The amount of federal income tax that each person pays can vary greatly depending on amount of income, marital status, and number of dependents.The FICA tax is the combined amount of Social Security tax and Medicare tax.
Slide #4 After taxes have been calculated, any remaining deductions are calculated.
These include:
Slide #5 The final step in payroll calculations is to add to the remaining amount of any reimbursements that the company owes the employee.
An employee might receive reimbursement for something they purchased for company use or for gas that was used to drive somewhere for business purposes.After all pre-tax deductions, tax withholdings, and post-tax deductions have been subtracted and any reimbursements added, the resulting total is the employee’snet pay.This is the amount reflected in the employee’s paycheck.
Objectives:
a. Discuss types of payroll taxes paid by employers or employees.b. Identify information and resources needed to calculate payroll taxes.c. Demonstrate how to calculate payroll taxes.Activity:
Complete the Calculating Payroll Taxes worksheet in activity 5.6 on the Student Handout
Employer-Paid Payroll Taxes—Discussion Guide
Slide # 1 THINK ABOUT IT
Employees are not the only ones responsible for paying payroll taxes. Employers are also required to pay taxes on their employees’ earnings.
KEY CONCEPTS
Slide #2 There are three main categories of payroll taxes:
The amount withheld for employee-paid income tax will vary greatly based on the level of income, state laws, and information from completed tax forms.
The FICA tax (the combined amount of the Social Security tax and the Medicare tax) is paid by both employers and employees.
Slide #3
An employer who has two employees, one who earns $145,000 per year and another who earns $60,000 per year, would calculate the FICA tax this way:
Slide #4 In addition to the matching funds for the FICA tax, employers must also pay a federal unemployment tax (FUTA) and a state unemployment tax (SUTA).
For each employee, employers are required to contribute up to 6.0% for the first $7,000 of annual earnings for the federal unemployment tax (up to $420 per year per employee) and an additional amount for the state unemployment tax.
This means that no matter how much an employee earns per year, as long as it is over $7,000, the FUTA tax is based on $7,000 of earnings.
For the purposes of this example, we will use the maximum 6.0% FUTA rate.
For more information on employer-paid payroll taxes, in addition to a helpful Employer Tax Calculator, click here: https://gusto.com/tools/employer-tax-calculator.
Discussion #1: Ask students to discuss why the rate charged for state unemployment tax/state unemployment insurance would be calculated differently for different companies. What do they think state unemployment insurance pays for? Why would company history affect this rate? How does this relate to other kinds of insurance?