PAYROLL CHAPTER 2 ACCOUNTING 2014 - Linn–Benton ...cf.linnbenton.edu/bcs/bm/rudermc/upload/Chapter 2...Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290 - (No - so employer

CHAPTER 2

PAYROLL ACCOUNTING 2014

Bernard J. Bieg and Judith A. Toland

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

distributed with a certain product or service or otherwise on a password-protected website for classroom use.

CHAPTER 2

COMPUTING WAGES &

SALARIES

Chapter 2

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or

service or otherwise on a password-protected website for classroom use.

Learning Objectives

1. Explain the major provisions of the Fair

Labor Standards Act

2. Define hours worked

3. Describe the main types of records used

to collect payroll data

4. Calculate regular and overtime pay

5. Identify distinctive compensation plans



What is Minimum Wage?

Includes all rates of pay including, but not

limited to

◦ Commissions

◦ Nondiscretionary bonuses and severance pay

◦ On-call or differential pay

Discretionary bonus (one which is not

agreed upon or promised before hand) is

not included in an employee’s regular rate

of pay



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What is Minimum Wage? (cont.)

Other types of compensation not

included in regular rate of pay include

◦ Gifts made as a reward for service

◦ Payments for a bona fide profit-sharing plan

◦ Vacation, holiday, sick day or jury duty pay

◦ Vehicle, tool or uniform allowances



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Tipped Employees

◦ “Tipped employee” regularly average more

than $30/month in tips

◦ Minimum tipped wages is $2.13/hour,

therefore tip credit = $5.12/hour – but may

be calculated differently based upon state law

Employee must make $7.25/hour when combining

tips/wages ($7.25 x 40 = $290 minimum weekly

gross)

Tip credit remains the same for overtime pay

calculation purposes



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Tipped Employees (cont.)

◦ Examples of tips received for 40-hour

workweek

#1. Reported tips = $43

Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290

- (No - so employer must pay additional wages of $290 -

$43 = $247)

#2. Reported tips = $1,189

Is $85.20 + $1,189 > $290 - (Yes – so employer pays

$85.20 wages)

Note: states’ tip credit percentages may differ

from federal law



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Overtime Provisions &

Exceptions

Workweek established by corporate

policy

◦ Must be seven consecutive 24-hour periods

◦ For example 12:01 a.m. Saturday - 11:59 p.m.

Friday

Some states require daily overtime (OT)

over 8 hours (if state plan is more

generous than FLSA, state law is followed)

FLSA sets OT pay at 1.5 times regular pay



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Overtime Provisions &

Exceptions (cont.)

Employer can require employees to work

overtime

Exceptions to the above are as follows

◦ Hospital employee, overtime for 80+ hours in

14 days or over 8 hours in a day (whichever is

greatest)

◦ Retail or service industry employees earning

commission (special rules)

◦ Employee receiving remedial education



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Exempt vs. Nonexempt

Employees

“Exempt” means exempt from some, or

all, of FLSA provisions

◦ White-collar workers as outlined in Figure 2-

2 (p. 2-10) are exempt

◦ Executives, administrators, professionals

◦ Business owners, highly compensated

employees

◦ Computer professionals and creative

professionals

◦ Outside salespeople © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or


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Figure 2-2

Indications of Exempt Status



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Exempt vs. Nonexempt

Employees (cont.)

Test of exemption means employee must

meet ‘primary duty’ requirements listed in

Figure 2-2

◦ Employee must be paid on salary basis at least

$455/week

Blue collar workers are always entitled to

overtime pay – includes police officers,

EMTs, firefighters, paramedics and LPNs

Note: Putting someone on salary doesn’t

mean he/she is exempt!!



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Determining Employee’s Work

Time

Principal activities require exertion, and

are required by the employer and for the

employer’s benefit

◦ Prep at work station is principal activity and in

some situations changing in/out of protective

gear may be part of workday

◦ Travel (when part of principal workday) is

compensable

◦ Idle time and wait time (waiting to provide

employer’s service)



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Determining Employee’s Work

Time (cont.) ◦ Rest periods under 20 minutes are principal

activities (can’t make employee “check out”)

◦ Meal periods are not compensable time unless employee must perform some tasks while eating – generally 30 minutes or longer

◦ Work at home is principal activity for nonexempt employees

◦ Sleep time is principal activity if required to be on duty < 24 hours

◦ Training sessions (with certain caveats)

◦ Waiting for doctor’s appointment on site



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Records Used for Timekeeping

FLSA requires certain time and pay

records be kept

◦ Time sheets indicate arrival/departure time of

employee

◦ Computerized time/attendance recording

systems

Card-generated systems use computerized time

cards



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Records Used for Timekeeping

(cont.) Badge systems employ badges in conjunction with

electronic time clocks

Cardless and badgeless sytems require that an

employee use their PIN number to process

timekeeping

PC-based system allows employee to clock in via

computer

◦ Next generation technology includes touch-

screen kiosks, web-based, biometrics and IVR

(interactive voice response)



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Computing Wages/Salaries

Most common pay periods are as follows

Biweekly (26) - 80 hours each pay period

Semi-monthly (24) - different hours each

pay period

Monthly (12)- different hours each pay

period

Weekly (52) - 40 hours each pay period

◦ Employer may have different pay periods for

different groups within same company!



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Calculating Overtime Pay

There are two methods

Most common method

◦ Calculate gross pay (40 hours x employee’s

regular rate)

◦ OT rate then calculated by multiplying 1.5 x

employee’s regular rate x hours in excess of

40



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Calculating Overtime Pay (cont.)

Other method

◦ Calculate gross pay (all hours worked x

employee’s regular rate)

◦ Then calculate an overtime premium (hours

in excess of 40 x overtime premium rate)

Hourly rate x ½ = *overtime premium rate

These methods result in same total gross pay!



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Salaried Nonexempt Employees

- Fluctuating Workweek

Employee and employer may forge an

agreement that a fluctuating schedule on a

fixed salary is acceptable

◦ Overtime is calculated by dividing normal

salary by total hours worked

◦ Then an extra 0.5 overtime premium is paid

for all hours worked over 40



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- Fluctuating Workweek (cont.)

or

◦ Can divide fixed salary by 40 hours – gives

different pay rate each week

◦ Then an extra 0.5 overtime premium is paid

for all hours worked over 40



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- Fluctuating Workweek (cont.)

Alternative – BELO Plan

◦ Appropriate for very irregular work schedule

◦ Deductions cannot be made for non-

disciplinary absences

◦ Guaranteed compensation cannot be for

more than 60 hours

◦ Calculate salary as wage rate multiplied by

maximum number of hours and then add 50%

for overtime



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Piece Rate

FLSA requires piecework earners to get

paid for nonproductive time

Must equal minimum wage with OT

calculated one of two ways



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Piece Rate (cont.)

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



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Piece Rate (cont.)

or

Method B

◦ (Units produced in 40 hours x piece rate) +

[(Units produced in OT) x (1.5 x piece rate)]

Note: two methods don’t give same

results!!



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Special Incentive Plans

Special incentive plans are modifications

of piece-rate plans

◦ Used to entice workers to produce more

Computation of payroll is based on

differing rates for differing quantities of

production



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Special Incentive Plans (cont.)

Example of incentive plan:

◦ 0.18/unit for units inspected up to 2,000

units/week

◦ 0.24/unit for units inspected between 2,001-

3,500 units/week

◦ 0.36/unit for units inspected over 3,500

units/week



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Documents

PAYROLL CHAPTER 2 ACCOUNTING 2014 - Linn–Benton ...cf.linnbenton.edu/bcs/bm/rudermc/upload/Chapter 2...Is $85.20 (40 x $2.13 minimum tipped wage) + $43 > $290 - (No - so employer