what do you need for salaries
GAAP
federal withholding
pay as you go, goes towards year end balance
social security and medicare
social security = 6.2% **caps outs at 184,500
medicare = 1.45% ** collect on everything
total = 7.65% taken from employee and 7.65% taken from employer (FICA)
ultimate total = 15.3%
FICA
7.65%
6.2 = social security
1.45% medicare
1040 filing
voluntary compliance
employee payout journal entries
wages exp XX
medicare pay XX
social security pay XX
fed with. pay XX
cash XX
**wages exp = gross
**cash = net paycheck
** medicare pay, SS pay, fed with. pay = current liab
employer journal entries
payroll tax exp XX
social sec pay XX
medicare pay XX
** mirrors SS and medicare exp on employee payout
other things that can be taken out
- state income tax
- childcare
- union duties
- health insurance
- parking
–> credit to a payable and reduce persons paycheck
state / fed unemployment taxes
not taken out of employee check, paid only by employer
payroll is a subcycle of which cycle
expenditure
–> own cycle bc has its own nuances
different classes of employees
people payed in different ways and calculations arent uniform
- hourly
- hourly and overtime
- salary
withholdings
unique to payroll
- have to withhold it, report it, transmit it
large batch at exact time
done as a batch processing
special controls due to what?
fraud issues
payroll control activities
- hiring – background checks
- calculate – withholdings, insurance, 401k
- collecting time info – time sheet, punch card, time card, excel sheet
- distribute check – how to get people the funds
- journal, sub ledger
adding people onto payroll
have to SEPERATE hiring and calculation of pay because all of their friends would be on payroll
documents in payroll cycle
- time cards – time sheets
- paystubs – even if get direct deposit; need to have a proper pay stub
- paychecks
- personnel files
- checks to others
- payroll journal
- employee sub ledger
controls in the cycle
- authorize new hires – typically in HR dept
- time worked – self reported, but need authorization (control)
- segregation of duties
- supervision
- access to files
- paymaster – pay out the $, distribute checks (control bc $ distributed by somebody else)
- verification – internal audit
- periodic verification of current employees – make sure people who dont work there anymore arent on payroll
imprest account
- good control
- any bank account set up for a specific purpose
- move over only the amount to cover the net pay/checks
–> frauds cant hit org for a big amount at once
–> easier to control and reconcile
** withholdings paid from main account
bank reconciliation
- control over cash account
- regularly reconcile
payroll is done…
in a batch process, so independent transactions processed all at once for efficiency
–> dotted line in flow chart
payroll fraud
company being tricked into paying someone
- fraudulent disbursement
** 4th most common fraudulent disbursement
ghost employee definition
real person, usually a former employee
falsified hours/ salary
someone works there, but plays around with the hours
