Definition of Payroll Accounting
Payroll accounting is the accounting that is done when an employer pays his employees. The amount of income each employee earns, called gross income, is totaled, and taxes and other deductions are subtracted. The amount the employee receives on his paycheck is called net pay.
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Gross Earnings
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A payroll accounting clerk calculates each employee's earning first. Many employees are paid a specific dollar amount per hour worked. Other employees may work for a specified salary per pay period. Pay periods vary, but typically they are once a week, every other week, once a month or twice a month. The amount the employee earns for the pay period is the gross income.
Payroll Withholdings
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Employers are required to withhold certain taxes from their employee's paychecks and pay them directly to the appropriate places. These withholding taxes are federal taxes, state and local taxes, and Medicare/Social Security taxes. Withholding taxes are calculated using a standard formula, and each state is different. These amounts change from year to year as well.
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Other Deductions
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Many times, employees choose benefits offered by the company that they must pay for, and are then recorded as deductions on their pay stub. Some of these other deductions include health insurance premiums, dental insurance and 401k contributions. Another common deduction is a child support garnishment, which can be mandated only by a court.
Net Pay
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A payroll accounting clerk deducts all withholdings and other deductions from the gross earnings for each employee. This amount is the net pay. This is the amount of the check the payroll clerk issues.
Responsibilities of the Employer
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The employer is responsible for paying all the withholding taxes withheld from her employees' paychecks. The employee is also responsible for matching the amounts of Medicare and Social Security taxes the employer paid. So the employee not only pays the amounts withheld, but also is responsible for paying that amount herself as well. The employer must also pay all the federal, state, and local taxes to the government on the appropriate days when they're due. This varies by state, too.
W-2's
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At the end of the year, an employer is responsible for issuing each employee who worked that year a W-2 form. This is a form that summarizes all payroll information for the entire year. It shows gross earnings, withholdings, other deductions and net pay.
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References
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