COMPUTING

1
CHAPTER 2
0
Payroll Accounting 2006 Bernard J. Bieg

• COMPUTING PAYING WAGES AND SALARIES

Developed by Lisa Swallow, CPA CMA MS
2
Fair Labor Standards Act FLSA
0

• Federal Wage Hour Law provides for
• two types of coverage
• Enterprise Coverage
• All EE of interstate commerce
• And 500,000 or more annual gross sales
• OR
• Individual Coverage
• EE whose company may not meet enterprise
  coverage, but are in a fringe occupation are
  covered individually
• for example packaging corp. with annual revenues
  225,000
• Plus many nonprofits (schools, public agencies,
  etc.)
• Many family businesses are exempt!

3
Employee Employer Defined
0

• An employer is an individual who acts
  directly/indirectly in the interest of an
  employer in relation to an employee
• An individual is an employee if he/she performs
  services in a covered employment
• Common-law

4
FLSA Domestic Help
0

• Domestic help includes nannies, gardeners,
  chauffeurs, etc.
• These employees must earn minimum wage and
  overtime if they
• work more than 8 hours/week or
• earn 1,000 in a calendar year
• Live-in help need not be paid overtime

5
What is Minimum Wage?
0

• Includes all rates of pay including, but not
  limited to
• Commissions
• Bonuses and severance pay
• On-call or differential
• Exceptions to minimum wage
• FT students employed at their own university -
  85
• Student learners at Vocational Technical school
  - 75
• Retail or service establishments and farms
  employing FT students - 85
• Physically or mentally impaired employees with
  certification
• Minimum wage is very different from living
  wage. Over 100 cities and counties now have
  local ordinances mandating employers who have
  local government contracts pay a wage to their
  employees at an amount minimally necessary to
  live on.

6
Tipped Employees
0

• Tipped employee regularly averages 30/month in
  tips
• Small Business Job Protection Act froze minimum
  tipped wages at 2.13/hour,
• EE still must make 5.15/hour when combining
  tips/wages (5.15 x 40 206 minimum weekly
  gross)
• ER gets credit for tips received between 2.13
  and 5.15
• Examples of tips received for 40-hour work week
• 1. Reported tips 43
• Is 85.20 (minimum tipped wages) 43 gt 206
• No - (206 - 43 163) so ER must pay additional
  wages (163 - 85.20)
• 2. Reported tips 1189
• Is 85.20 1189 gt 206
• Yes - so ER pays 85.20 wages
• 3. Reported tips 111
• Is 85.20 111 gt 206
• No - (206 - 111 95) so ER must pay additional
  wages (95 - 85.20)

40 hours x 2.13/hour 85.20
7
40 Hour Work Week
0

• Established by corporate policy (for example
  1201 a.m. Saturday - 1159 p.m. Friday)
• Seven consecutive 24-hour periods
• Some states require daily overtime (OT) over 8
  hours
• not FLSA
• FLSA sets OT at 1.5 times regular pay
• Exception 1 - Hospital EE, overtime for 80
  hours in 14 days
• Exception 2 - EE receiving remedial education
• Exception 3 - Retail workers earning commission
  (special rules)
• Exception 4 - Emergency public safety EE
• can accumulate 320 hours x 1.5 480 hours
  compensatory time instead of OT
• Exception 5 - EE of state or interstate
  governmental agency
• can accumulate 160 hours x 1.5 240 hours
  compensatory time instead of OT

8
Exempt vs. Nonexempt
0

• Putting someone on salary
• doesnt mean theyre exempt!!
• Exempt means exempt from overtime provisions of
  FLSA
• White-collar workers
• Executives
• Professional
• Administrative
• Highly compensated employees
• Computer professionals
• Outside sales (455/week doesnt apply)
• Test of exemption
• Employee must be paid on salary basis
• Must meet primary duty requirements
• see Figure 2-2 in text

To be considered exempt, must be paid at least
455/week
9
Child Labor Laws
0

• Under age 16 cannot work in construction, mining,
  manufacturing, etc.
• Under age 18 cannot work in hazardous jobs
• Under 16 years old limited to employment in
  retail and food/gas service
• only 7 a.m. - 7 p.m. (until 9 p.m. allowed in
  summer)
• 3 hours per day - 18 hours per week school year
• 8 hours per day - 40 hours per week summer
• In agricultural occupations an employee as young
  as 10 can work
• only from 6/1 - 10/15
• Hand harvest laborers outside school hours only
• subject to many strict limitations
• ER needs to have certificate of age on file
• Violations can result in up to 10,000/offense

10
What the FLSA Does Not Cover
0

• Employers are not required to
• Pay extra for weekend/holiday work
• Pay for holidays or vacation
• Grant vacation time
• Limit hours for persons 16 years of age or over

11
Compensable vs. Noncompensable Time
0

• Travel (when part of principal workday) is
  compensable
• Training (when for ER benefit/required) is
  compensable
• Rest periods under 20 minutes are compensable
  (cant make EE check out)
• Prep at work station (but not clothes changing,
  shower) is compensable
• Meal periods are not considered compensable
  unless employee must perform some tasks while
  eating
• On call time is not compensable if employee can
  spend time as he/she chooses
• Work at home is compensable if nonexempt employee
• Sleep time is compensable if required to be on
  duty less than 24 hours
• Preliminary/postliminary activities
• Not compensable unless required by
  contract/custom

12
Timekeeping
0

• FLSA requires employers to retain time/pay
  records
• Employer in traditional office environment can
  use
• Time sheet
• Time cards
• Computerized time/attendance records
• card-generated systems (computerized totals)
• badge systems (microchips or bar codes)
• cardless/badgeless system - EE enters PIN
• PC-based system
• Employer in nontraditional office environment can
  use
• Touch screen technology (PC screen reads touch
  input)
• Internet
• Wireless transmission (cell phones, personal
  digital assistants PDAs)
• Biometrics - iris scan, finger print or some
  other unique characteristic to ensure security

13
Pay Periods
0

• Biweekly (26) - same hours each pay period
• Semi-monthly (24) - different hours each pay
  period
• Monthly (12)- different hours each pay period
• Weekly (52) - same hours each pay period
• ER can have different pay periods for different
  groups within same company!

14
Steps to Follow when Calculating Gross Pay
0

• Annualize Salary
• Calculate regular gross
• Calculate hourly pay
• Calculate OT rate (1.5 x hourly rate)
• Add overtime pay to regular gross

15
Example 1 - Calculating Gross Paycheck
0

• FACTS Salary quoted is 1,500/month - paid
  weekly - 43 hours in one pay period
• 1,500 x 12 18,000 annual
• 18,000/52 346.15 weekly gross
• 18,000/2,080 hours 8.65 regular rate
• 8.65 x 1.5 12.98 OT rate
• (12.98 x 3) 346.15 385.09 gross

16
Example 2 - Calculating Gross Paycheck
0

• FACTS Salary quoted is 2,000/month paid
  semimonthly - 4 hours OT in one pay period
• 2,000 x 12 24,000 annual
• 24,000/24 1,000 semimonthly gross
• 24,000/2080 11.54 regular rate
• 11.54 x 1.5 17.31 OT rate
• (1,000) (17.31 x 4) 1,069.24 gross

17
Example 3 - Calculating Gross Paycheck
0

• FACTS Salary quoted is 2,000/month for 38 hour
  work week - paid semimonthly. Two rates in
  addition to semimonthly gross regular pay
  between 38-40 hours/week 1.5 after 40 hours. Of
  16 hours of OT in one pay period only 12 over
  40.
• 2,000 x 12 24,000 annual
• 24,000/24 1,000 semimonthly gross
• 24,000/ (38 x 52) 12.15 regular rate
• 12.15 x 1.5 18.23 OT rate
• 1,000 (4 x 12.15) (12 x 18.23) 1267.36
  gross
• Denominator is always number of hours in full
  time year may be different between
  companies

18
Example 4 - Calculating Gross Paycheck
0

• FACTS Salary quoted is 1,600/month for 35 hour
  work week -paid semimonthly. OT is calculated as
  regular hourly pay between 35-40 hours/week 1.5
  after 40 hours. Of 16 hours of OT in one pay
  period, 6 hours are over 40 hours weekly.
• 1,600 x 12 19,200 annual gross
• 19,200/24 800 semimonthly gross
• 19,200/(35 hours x 52 weeks) 10.55 regular
  rate
• 10.55 x 1.5 15.83 OT rate
• 800 (10.55 x 10) (15.83 x 6) 1000.48
  gross

19
Example 5 - Calculating Gross Paycheck
0

• FACTS Salary quoted is 2,200/month -
• paid biweekly - 11.5 hours OT in one pay period
• 2,200 x 12 26,400 annual
• 26,400/26 1,015.38 each biweekly pay period
• 26,400/2080 12.69 regular rate
• 12.69 x 1.5 19.04 OT rate
• 1,015.38 (11.5 x 19.04) 1,234.34 gross

20
Salaried Employees - Fluctuating Workweek
0

• Some employees may work a fluctuating schedule on
  a fixed salary
• Not applicable to hourly employees
• Employee must agree to this system
• Overtime is calculated by dividing normal salary
  by total hours worked
• Then an extra .5 rate is paid for all hours
  worked over 40
• Not allowed in all states

21
Piece Rate
0

• FLSA requires piecework earners to get paid for
  nonproductive time
• Must equal minimum wage with OT calculated one of
  two ways
• Method A
• units produced x unit piece rate regular
  earnings
• regular earnings/total hours hourly rate
• hourly rate x 1/2 OT premium
• regular earnings (OT premium x OT hours)
  gross pay
• or
• Method B
• (units produced in 40 hours x piece rate)
• (units produced in OT) x (1.5)(piece rate)

22
Example 1 - Calculating Piece Rate Gross Pay
0

• FACTS 4,812 units inspected in a 47.25 hour week
  (600 of those units produced in extra hours).
  Employee is paid .12 per unit. Calculate gross
  using both methods.
• Method A
• (4,812 x .12) 577.44 regular piece rate
  earnings
• 577.44/47.25 12.22 hourly rate
• 12.22 x .5 6.11 OT premium
• 577.44 (6.11 x 7.25 hrs.) 621.74 gross
• Method B
• (4,212 x .12) 600 x (.12)(1.5) 613.44
  gross

23
0
Example 2 - Calculating Piece Rate Gross Pay

• FACTS Inspection rate .08/unit. An EE
  inspected 6897 units in 43.5 hours. She inspected
  423 of these in overtime. Calculate using both
  methods.
• Method A
• (6897 units x .08) 551.76 regular piece rate
  earnings
• 551.76/43.5 hours 12.68 hourly rate
• 12.68 x .5 6.34 OT premium
• 551.76 (6.34 x 3.5) 573.95 gross
• Method B
• (6474 x .08) (423 x .08 X 1.5) 568.68 gross

24
Special Incentive Plans
0

• Some piece rates systems may be modified to
  entice workers to produce more
• Computation of payroll is based on differing
  rates for differing quantities of production
• Example
• .18/unit for units inspected up to 2000
  units/week
• .24/unit for units inspected between 2001-3500
  units/week
• .36/unit for units inspected over 3500 units/week

25
Commission
0

• Commission can be used in many combinations (with
  base salary or stand alone) - as long as minimum
  wage provisions are met
• FACTS Sam sold 40,000 of product. His quota is
  31,500. He gets 2 in excess of quota. His
  annual base salary is 30,000. He gets paid
  biweekly
• 30,000/26 1153.85 base earnings
• (8500 x .02) 170 commission
• 1153.85 170.00 1323.85 gross

26
Profit-Sharing Plans
0

• Profit Sharing Plans
• EE shares in corporate profits receives his/her
  share in the form of
• Cash payment
• Profits distributed into retirement or savings
  account
• Profits distributed as stock
• These payments must meet standards established by
  Department of Labor