Chapter 12

Payroll Accounting

What You’ll Learn

Explain the importance of accurate payroll records.

Compute gross pay using different methods.

Explain and compute employee-paid withholdings.

Compute net pay.

Prepare payroll registers.

Explain the methods of distributing payroll funds.

Prepare an employee’s earnings record.

Define the accounting terms introduced in
this chapter.

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 Payroll System

By

Shahzad Asghar Arain

MIS/GIS Expert
0334-9564004
shahzad.cdcu@gmail.com

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 Chapter 12, Section 1
Calculating Gross Earnings

What Do You Think?

What kinds of earnings might contribute to an
employee’s gross earnings?

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Main Idea
Gross earnings is the total amount an employee earns in
a pay period.

You Will Learn

the two main functions of a payroll system.

the different methods of computing gross pay.

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SECTION 12.1 Calculating Gross Earnings

Key Terms

payroll

pay period

payroll clerk

gross earnings

salary

wage

time card

electronic badge readers

commission

piece rate

overtime rate

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SECTION 12.1 Calculating Gross Earnings

Using a Payroll System

A payroll is a list of employees and payments due to
each employee for a specific pay period. Businesses
with many employees can have a payroll clerk.
A well-designed payroll system achieves the following
goals:

The collection and processing of all information
needed to prepare and issue payroll checks.

The generation of payroll records needed for
accounting purposes and for reporting to
government agencies, management, and others.

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SECTION 12.1 Calculating Gross Earnings

Computing Gross Pay

The amount of money an employee earns in a pay
period is called gross earnings, or gross pay.
Employees are grouped into different pay categories to
help the employer compute the gross pay:

salary

hourly wage

commission

salary plus commission or bonus

piece rate

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SECTION 12.1 Calculating Gross Earnings

Salary
A common method of paying employees is by salary, a
fixed amount of money paid each pay period regardless
of the number of hours worked.

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SECTION 12.1 Calculating Gross Earnings

Hourly Wage
Another common method of paying employees is the
hourly wage, an amount of money paid at a specified
rate per hour worked. Employees are sometimes
required to use a time card to record hours worked.
Some businesses use electronic badge readers to
track employees’ work hours.

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SECTION 12.1 Calculating Gross Earnings

Commission
Sales employees are often paid a commission, a
percentage of the employee’s sales.

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SECTION 12.1 Calculating Gross Earnings

Salary Plus Commission or Bonus

Some sales employees are paid a base salary plus a
commission or bonus based on their sales.

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SECTION 12.1 Calculating Gross Earnings

Piece Rate
Employees receive piece rate when they are paid for
each item they produce.

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Overtime Pay
Employers are generally required to pay overtime when
employees work more than 40 hours per week. The
overtime rate, as set by the Fair Labor Standards Act of
1938, is 1.5 times the employee’s regular pay rate.
Salaried employees are sometimes entitled to overtime
pay as well.

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SECTION 12.1 Calculating Gross Earnings

Key Terms Review

payroll
A list of the employees and the payments due to
each employee for a specific pay period.

pay period
The amount of time over which an employee is
paid.

payroll clerk
An employee responsible for preparing the
payroll.

gross earnings
The total amount of money an employee earns in
a pay period; also called gross pay.

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SECTION 12.1 Calculating Gross Earnings

Key Terms Review

salary
A fixed amount of money paid to an employee for
each pay period.

wage
An amount of money paid to an employee at a
specified rate per hour worked.

time card
A record of the time an employee arrives at work,
leaves work, and the total number of hours
worked each day.

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Key Terms Review

electronic badge readers
An electronic device that scans the magnetic strip
containing employee information on an
employee’s identification badge and then
transfers the information directly to a computer.

commission
An amount paid to an employee based on a
percentage of the employee’s sales.

piece rate
A rate of pay based on the number of items
produced.

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SECTION 12.1 Calculating Gross Earnings

Key Terms Review

overtime rate
Pay rate employers are required to pay certain
employees covered by state and federal laws; the
Fair Labor Standards Act of 1938 sets the rate at
1.5 times the regular hourly rate after 40 hours
per week.

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