Payroll Liabilities GUILTY APPENDIX

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If payroll liabilities are not recorded, what is the effect on the financial CRITICAL THINKING CHALLENGE

LEARNING OBJECTIVES

LO1 _{Identify the taxes and other} items frequently withheld from employees’ wages.

LO2 _{Make the calculations necessary} to prepare a payroll register and prepare the entries to record and pay payroll liabilities.

LO3 _{Calculate the payroll costs levied} on employers and prepare the entries to record the accrual and payment of these amounts.

LO4_{Calculate and record employee} fringe benefit costs.

A P P E N D I X

I

Payroll Liabilities

GUILTY

Edmundston—The Canada Revenue Agency (CRA) announced that a dentist was fined $3,000 in Edmundston provincial court after pleading guilty to three charges of failing to remit over $8,000 in monies deducted and withheld from wages and salaries paid to employees.

Montreal—A director on the board of two companies was fined $541,870 and sentenced to a 12-month prison term following a CRA investigation that showed payroll deductions from the salaries of employees were not remitted to the Receiver General for Canada.

In each of the above cases, unpaid deductions had to be paid in addition to the fines. Failure to do so would result in imprisonment. The CRA takes non-payment of source deductions very seriously, as the amounts deducted from employees are deemed to be held in trust until remitted to CRA on their behalf. Canadians have to be confident that the tax system is fair, and know that CRA will prosecute those individuals who cheat.

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A-2 APPENDIX I Payroll Liabilities

APPENDIX PREVIEW

Wages or salaries generally amount to one of the largest expenses incurred by a busi-ness. Accounting for employees’ wages and salaries is one task that is shared by almost all business entities.

Payroll accounting:

• Records cash payments to employees.

• Provides valuable information regarding labour costs. • Accounts for amounts withheld from employees’ pay.

• Accounts for employee (fringe) benefits and payroll costs paid by the employer. • Provides the means to comply with governmental regulations on employee

compensation.

As you study this appendix, you will learn the general processes that all businesses follow to account for these items.

ITEMS WITHHELD FROM EMPLOYEES’ WAGES

An understanding of payroll accounting and the design and use of payroll records requires some knowledge of the laws and programs that affect payrolls. Many of these require payroll deductions, amounts withheld from the wages of employ-ees, and are discussed in the first portion of this appendix.

LO1 _{Identify the taxes and other} items frequently withheld from employees’ wages.

Withholding Employees’ Income Tax

Employers are required to calculate, collect, and remit to the Receiver General for Canada the income taxes of their employees. Historically, when the first federal in-come tax law became effective in 1917, it applied to only a few individuals having high earnings. It was not until the Second World War that income taxes were levied on almost all wage earners. At that time, Parliament recognized that many individ-ual wage earners could not be expected to save the money needed to pay their in-come taxes once each year, so Parliament began a system of pay-as-you-go withholding of taxes at their source each payday. This pay-as-you-go withholding of employee income taxes requires an employer to act as a tax collecting agent of the federal government. Failure to cooperate results in severe consequences.

The amount of income taxes to be withheld from an employee’s wages is deter-mined by his or her wages and the amount of personal tax credits. Based on rates

The Canadian Payroll Association (CPA) represents more than 10,000 members of the professional payroll commu-nity in Canada, the United States, and abroad. With over 18 million Canadian employees paid through CPA member

companies, its mission is to provide payroll leadership through advocacy and educa-tion. The two qualifications granted through the country’s only nationally recog-nized Payroll Management Certificate Program are Payroll Compliance Practitioner (PCP) and Certified Payroll Manager (CPM).

D E C I S I O N I N S I G H T SOURCE: www.payroll.ca. T D Dothe exercises Apply your critical thinking skills

Checkyour answers

Read the material Student Success Cycle

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The total of each taxpayer’s personal tax credits is deducted from income to deter-mine the level of income tax deductions from the individual’s gross pay. For exam-ple, based on rates effective January 1, 2012, a Saskatchewan resident with a gross weekly salary of $400 and personal tax credits of $10,822 (2012 net claim code 1 on the TD1 form) would have $31.84 of total income taxes withheld. Another individual with the same gross salary but with personal tax credits of $17,027 (claim code 5) would have $10.96 withheld.

Employers withhold income tax owed by each employee every payday based on an employee’s completed Personal Tax Credits Return, Form TD1. There are federal and provincial/territorial TD1 forms. The taxpayer must file revised TD1 forms each time the exemptions change during a year. The federal TD1 form is shown in Extend Your Knowledge A-1 online.

In determining the amounts of income taxes to be withheld from the wages of employees, employers use payroll deductions tables provided by the Canada Reve-nue Agency (CRA). The to-be-withheld amounts include both federal and provincial income taxes except for the province of Quebec, which levies and collects its own income tax and its own pension plan contributions. Provincial income tax rates vary from province to province. Therefore, for consistency, all examples and problems making use of tax tables in this appendix will be based on Saskatchewan’s tables. Calculation of deductions is simplified for computer users if they access the “Payroll Deductions Online Calculator” (PDOC) at https://apps.cra-arc.gc.ca/ebci/rhpd/start Language.do?lang=English. Employers are required to remit the withheld taxes to the Receiver General for Canada each month.

Canada (or Quebec) Pension Plan (CPP or QPP)

Every working person between the ages of 18 and 70 with few exceptions must make contributions in required amounts to the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP).

Effective December 9, 2011, contributions are based on earnings as follows:

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Employers are responsible for making the proper deductions from their employ-ees’ earnings. They remit these deductions each month, together with their own contributions, to the Receiver General for Canada.

Self-employed individuals pay the combined rate for employees and employers, or 9.9% on annual earnings between $3,500 and the exempt ceiling of $50,100.

Canada Pension Plan Contributions Effective

Dec. 9, 2011 Employee Contributions Employer Contributions

Rate ... 4.95%* 4.95%* Maximum ... $2,306.70 $2,306.70

*4.95% of earnings greater than $3,500 and less than $50,100.

1. Basic Personal Amount ... $10,822 2. Married or Equivalent... 10,822

(with maximum earnings stipulated)

in effect January 1, 2012, each individual is entitled, in 2012, to some or all of the following annual amounts that are subject to tax credits (as applicable):

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Employment Insurance (EI)

To assist the unemployed, the federal government began an employee/employer-financed unemployment insurance plan. Under the revised 1996 Employment Insurance Act, compulsory Employment Insurance (EI) coverage was extended to all Canadian workers who are not self-employed. Over 13 million employees, including teachers, hospital workers, and top-level executives, are covered by the insurance plan.

The Employment Insurance fund from which benefits are paid is jointly financed by employees and their employers. At January 1, 2012, employers are required to deduct from their employees’ wages 1.83% of insured earnings, to add a contribution of 1.4 times the amount deducted from employees’ wages, and to remit both amounts to the Receiver General for Canada. The system is summarized as follows:

Insured earnings, in most instances, refer to gross earnings. An employee may receive taxable benefits or allowances that would be included in gross earnings but would not be considered insurable earnings. However, in this text, gross earnings will be insurable earnings.

The Employment Insurance Act also requires that an employer complete a “record of employment” because of termination of employment, illness, injury, or preg-nancy and keep a record for each employee that shows among other things wages subject to employment insurance and taxes withheld.

Use of Withholding Tables

Employers may use wage bracket withholding tables in determining Canada Pension Plan and Employment Insurance to be withheld from employees’ gross earnings. These tables are available from CRA.

Alternatively, determining the amount of withholdings from an employee’s gross wages is quite easy when the Payroll Deductions Online Calculator is used. Extend Your Knowledge A-2 online shows the screens used to determine withholding amounts using the Payroll Deductions Online Calculator.

The T-4 Form

Employers are required to report wages and deductions both to each employee and to the local office of CRA. On or before the last day of February, the employer must give each employee a T-4 statement that tells the employee:

• Total wages for the preceding year.

• Taxable benefits received from the employer. • Income taxes withheld.

• Deductions for registered pension plan. • Canada Pension Plan contributions. • Employment Insurance deductions.

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Employment Insurance Contributions Effective

Jan. 1, 2012 Employee Contributions Employer Contributions

Rate ... 1.83% 1.4 times employee rate Maximum ... $839.97 $1,175.96

Note: maximum insurable earnings for 2012 are $45,900. Lar51503_app_001-033.indd Page A-4 01/11/12 3:08 PM user-f502

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EXHIBIT A.1 2012 T-4 Form

On or before the last day of February the employer must forward to the district taxa-tion office copies of the employee’s T-4 statements plus a T-4 that summarizes the information contained on the employee’s T-4 statements. The T-4 form is shown in Exhibit A.1. 22 24 26 44 46 50 56 55 AE RPC/RRQ RPAP 28 EI insurable earnings Gains assurables d'AE Employer's name – Nom de l'employeur

Year Année

Employment income – line 101 Revenus d'emploi – ligne 101

Employee's CPP contributions – line 308 Cotisations de l'employé au RPC – ligne 308

Employee's QPP contributions – line 308 Cotisations de l'employé au RRQ – ligne 308

Employee's EI premiums – line 312 Cotisations de l'employé à l'AE – ligne 312

CPP/QPP pensionable earnings Gains ouvrant droit à pension – RPC/RRQ

Union dues – line 212 Cotisations syndicales – ligne 212

Charitable donations – line 349 Dons de bienfaisance – ligne 349 RPP contributions – line 207

Cotisations à un RPA – ligne 207

RPP or DPSP registration number N° d'agrément d'un RPA ou d'un RPDB Pension adjustment – line 206

Facteur d'équivalence – ligne 206

Income tax deducted – line 437 Impôt sur le revenu retenu – ligne 437

Employment code Code d'emploi

54 Payroll account number / Numéro de compte de retenues

12

Social insurance number Numéro d'assurance sociale

Province of employment Province d'emploi

T4

STATEMENT OF REMUNERATION PAID ÉTAT DE LA RÉMUNÉRATION PAYÉE

Employee's name and address –Nom et adresse de l'employé

Last name (in capital letters) – Nom de famille (en lettres moulées) First name – Prénom Initials – Initiales

PPIP insurable earnings Gains assurables du RPAP Employee's PPIP premiums – see over

Cotisations de l'employé au RPAP – voir au verso

Other information (see over) Autres renseignements (voir au verso) Amount – Montant Box – Case Amount – Montant Box – Case Amount – Montant Box – Case Amount – Montant Box – Case Amount – Montant Box – Case Amount – Montant Box – Case 씰 14 10 29 16 17 18 20 52 T4 (11) Exempt–Exemption PPIP EI CPP/QPP

Saskatchewan Harvesters

12311-51 Avenue

2012

Lloydminster, Saskatchewan

48,100 00

8,781 24

999999999RP8888

SK

2,207 92

45,900 00

123456789

44,600 00

839 97

728 00

MACLACHLAN SHANNON

1,300 00

11949-58 Street

Lloydminster, Saskatchewan

S9V 0A6

Reproduced with permission of the Minister of Public Works and Government Services Canada, 2012.

Wages, Hours, and Union Contracts

All provinces have laws establishing maximum hours of work and minimum pay rates. And, while the details vary with each province, generally employers are re-quired to pay an employee for hours worked in excess of 40 in any one week at the employee’s regular pay rate plus an overtime premium of at least one-half of his or her regular rate. In addition, employers commonly operate under contracts with their employees’ union that provide even better terms.

In addition to specifying working hours and wage rates, union contracts often provide that the employer shall deduct dues from the wages of each employee and remit the amounts deducted to the union.

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Other Payroll Deductions

Employees may individually authorize additional deductions such as:

THE PAYROLL REGISTER

Each pay period the total hours worked are summarized in a payroll register, an ex-ample of which is shown in Exhibit A.2. The illustrated register is for a weekly pay period and shows the payroll data for each employee on a separate line.

In Exhibit A.2, the columns under the heading Daily Time show the hours worked each day by each employee. The total of each employee’s hours is entered in the column headed Total Hours. If hours include overtime hours, these are entered in the column headed O.T. Hours.

The Regular Pay Rate column shows the hourly pay rate of each employee. Total hours worked multiplied by the regular pay rate equals regular pay. Overtime hours multiplied by the overtime premium rate (50% in this case) equals overtime premium pay (O.T. Premium Pay column). And regular pay plus overtime premium pay is the employee’s gross pay.

The amounts withheld from each employee’s gross pay are recorded in the De-ductions columns of the payroll register. For example, you determine the income tax deductions by matching the gross pay of each employee to the tax deduction tables and then enter the results in the tax deduction column. Income tax deductions are based on the gross pay less the amounts deducted for EI and CPP (or QPP). The tax tables allow for these adjustments and separate books are available for each prov-ince. Exhibit A.2 assumes that income tax deductions are based on the tables pro-vided in Exhibit A.3 assuming the employees are resident in Saskatchewan.

For example, you can use the tables in Exhibit A.3 to determine the appropriate CPP, EI, and income tax deductions for John Auer’s $400 pay. In the CPP table, under the Pay

column, find $400. The CPP deduction according to the table is $16.47 for the pay range $399.93–$400.12. Using the EI table, go to the Insurable Earnings column and find $400. The table shows that the EI deduction for the range $399.73–$400.27 is $7.32. Finally, using each of the federal and provincial tax deductions tables, go to the Pay column and find $400. Now follow the numbers across to the claim code 1 column (assume a claim code of 1 unless otherwise specified). The tables show a total income tax to be deducted of $32.001_{(federal tax of $22.20 provincial tax of $9.80). You can use the tables to}

determine the CPP, EI, and income tax deductions for the remaining employees.

LO2 _{Make the calculations} necessary to prepare a payroll register and prepare the entries to record and pay payroll liabilities.

1. Deductions to accumulate funds for the purchase of Canada Savings Bonds. 2. Deductions to pay health, accident, hospital, or life insurance premiums. 3. Deductions to repay loans from the employer or the employees’ credit

union.

4. Deductions to pay for merchandise purchased from the company.

5. Deductions for donations to charitable organizations such as the United Way.

1. What is the purpose of the federal Employment Insurance scheme?

2. When must T-4 statements be given to employees?

3. What are other typical nonmandatory payroll deductions? Do Quick Study question: QS A-1

C H E C K P O I N T

1 The Payroll Deductions Online Calculator produces marginally more accurate results since the table values are based on ranges vs. speciﬁ c dollar amounts.

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Payroll

Week Ended

Earnings

Clock Reg. O.T.

Card Daily Time Total O.T. Pay Regular Premium Gross

Employees No. M T W T F S S Hours Hours Rate Pay Pay Pay

Auer, John 118 8 8 8 8 8 40 10.00 400.00 400.00 1 Cheung, Joen 109 0 8 8 8 8 8 40 12.00 480.00 480.00 2 Daljit, Moe 121 8 8 8 8 8 8 4 52 12 15.00 780.00 90.00 870.00 3 Lee, Shannon 104 8 8 8 8 8 4 44 4 14.00 616.00 28.00 644.00 4 Prasad, Sunil 108 8 8 8 8 4 8 44 4 15.00 660.00 30.00 690.00 5 Rupert, Allan 105 8 8 8 8 8 40 12.00 480.00 480.00 6 Totals 3,416.00 148.00 3,564.00 Register March 9, 2012

Deductions Payment Distribution

Gross EI Income Hospital Total Net Cheque Sales Ofﬁ ce

Pay Premium Taxes Insurance CPP Deductions Pay Number Salaries Salaries

1 400.00 7.32 32.00 18.00 16.47 73.79 326.21 754 400.00 2 480.00 8.78 51.30 18.00 20.43 98.51 381.49 755 480.00 3 870.00 15.92 150.45 24.00 39.73 230.10 639.90 756 870.00 4 644.00 11.79 91.50 18.00 28.55 149.84 494.16 757 644.00 5 690.00 12.63 102.00 24.00 30.82 169.45 520.55 758 690.00 6 480.00 8.78 51.30 18.00 20.43 98.51 381.49 759 480.00 3,564.00 65.22 478.55 120.00 156.43 820.20 2,743.80 2,050.00 1,514.00 EXHIBIT A.2 Payroll Register EXHIBIT A.3

Excerpts From CPP, EI, and Income Tax Tables Effective January 1, 2012.

Canada Pension Plan Contributions Cotisations au Régime de pensions du Canada

Weekly (52 pay periods a year) Hebdomadaire (52 périodes de paie par année)

Pay Pay Pay Pay

Rémunération CPP Rémunération CPP Rémunération CPP Rémunération CPP

RPC RPC RPC RPC

From - De To - À From - De To - À From - De To - À From - De To - À 399.93 - 400.12 16.47 400.13 - 400.33 16.48 400.34 - 400.53 16.49 400.54 - 400.73 16.50 400.74 - 400.93 16.51 400.94 - 401.13 16.52 401.14 - 401.34 16.53 401.35 - 401.54 16.54 401.55 - 401.74 16.55

Employee's maximum CPP contribution for the year 2012 is $2,306.70 La cotisation maximale de l'employé au RPC pour l'année 2012 est de 2 306,70 $ 479.93 - 480.12 20.43 480.13 - 480.33 20.44 480.34 - 480.53 20.45 480.54 - 480.73 20.46 480.74 - 480.93 20.47 480.94 - 481.13 20.48 481.14 - 481.34 20.49 481.35 - 481.54 20.50 481.55 - 481.74 20.51 643.57 - 643.76 28.53 643.77 - 643.96 28.54 643.97 - 644.16 28.55 644.17 - 644.37 28.56 644.38 - 644.57 28.57 644.58 - 644.77 28.58 644.78 - 644.97 28.59 644.98 - 645.17 28.60 645.18 - 645.38 28.61 689.02 - 689.21 30.78 689.22 - 689.42 30.79 689.43 - 689.62 30.80 689.63 - 689.82 30.81 689.83 - 690.02 30.82 690.03 - 690.22 30.83 690.23 - 690.43 30.84 690.44 - 690.63 30.85 690.64 - 690.83 30.86 867.20 - 867.40 39.60 867.41 - 867.60 39.61 867.61 - 867.80 39.62 867.81 - 868.00 39.63 868.01 - 868.20 39.64 868.21 - 868.41 39.65 868.42 - 868.61 39.66 868.62 - 868.81 39.67 868.82 - 869.01 39.68 869.02 - 869.21 39.69 869.22 - 869.42 39.70 869.43 - 869.62 39.71 869.63 - 869.82 39.72 869.83 - 870.02 39.73 870.03 - 870.22 39.74 870.23 - 870.43 39.75 870.44 - 870.63 39.76 870.64 - 870.83 39.77 903.57 - 903.76 41.40 903.77 - 903.96 41.41 903.97 - 904.16 41.42 904.17 - 904.37 41.43 904.38 - 904.57 41.44 904.58 - 904.77 41.45 904.78 - 904.97 41.46 904.98 - 905.17 41.47 905.18 - 905.38 41.48 934.48 - 934.67 42.93 934.68 - 934.87 42.94 934.88 - 935.07 42.95 935.08 - 935.27 42.96 935.28 - 935.48 42.97 935.49 - 935.68 42.98 935.69 - 935.88 42.99 935.89 - 936.08 43.00 936.09 - 936.28 43.01

Employment Insurance Premiums Cotisations à l'assurance-emploi

Insurable Earnings EI Insurable Earnings EI Insurable Earnings EI Insurable Earnings EI Rémunération assurable premium Rémunération assurable premium Rémunération assurable premium Rémunération assurable premium

Cotisation Cotisation Cotisation Cotisation From - De To - À d'AE From - De To - À d'AE From - De To - À d'AE From - De To - À d'AE

Yearly maximum insurable earnings are $45,900 Le maximum annuel de la rémunération assurable est de 45 900 $ Yearly maximum employee premiums are $839.97 La cotisation maximale annuelle de l'employé est de 839,97 $ The premium rate for 2012 is 1.83% Le taux de cotisation pour 2012 est de 1,83 %

398.64 - 399.18 7.30 399.19 - 399.72 7.31 399.73 - 400.27 7.32 400.28 - 400.81 7.33 400.82 - 401.36 7.34 401.37 - 401.91 7.35 401.92 - 402.45 7.36 402.46 - 403.00 7.37 403.01 - 403.55 7.38 477.33 - 477.86 8.74 477.87 - 478.41 8.75 478.42 - 478.96 8.76 478.97 - 479.50 8.77 479.51 - 480.05 8.78 480.06 - 480.60 8.79 480.61 - 481.14 8.80 481.15 - 481.69 8.81 481.70 - 482.24 8.82 639.62 - 640.16 11.71 640.17 - 640.71 11.72 640.72 - 641.25 11.73 641.26 - 641.80 11.74 641.81 - 642.34 11.75 642.35 - 642.89 11.76 642.90 - 643.44 11.77 643.45 - 643.98 11.78 643.99 - 644.53 11.79 644.54 - 645.08 11.80 683.88 - 684.42 12.52 645.09 - 645.62 11.81 684.43 - 684.97 12.53 645.63 - 646.17 11.82 684.98 - 685.51 12.54 646.18 - 646.72 11.83 685.52 - 686.06 12.55 646.73 - 647.26 11.84 686.07 - 686.61 12.56 647.27 - 647.81 11.85 686.62 - 687.15 12.57 647.82 - 648.36 11.86 687.16 - 687.70 12.58 648.37 - 648.90 11.87 687.71 - 688.25 12.59 648.91 - 649.45 11.88 688.26 - 688.79 12.60 688.80 - 689.34 12.61 689.35 - 689.89 12.62 689.90 - 690.43 12.63 690.44 - 690.98 12.64 690.99 - 691.53 12.65 691.54 - 692.07 12.66 692.08 - 692.62 12.67 692.63 - 693.16 12.68 693.17 - 693.71 12.69 865.85 - 866.39 15.85 866.40 - 866.93 15.86 866.94 - 867.48 15.87 867.49 - 868.03 15.88 868.04 - 868.57 15.89 868.58 - 869.12 15.90 869.13 - 869.67 15.91 869.68 - 870.21 15.92 870.22 - 870.76 15.93 870.77 - 871.31 15.94 871.32 - 871.85 15.95 871.86 - 872.40 15.96 872.41 - 872.95 15.97 872.96 - 873.49 15.98 873.50 - 874.04 15.99 874.05 - 874.59 16.00 874.60 - 875.13 16.01 875.14 - 875.68 16.02

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EXHIBIT A.3

Excerpts From CPP, EI, and Income Tax Tables Effective January 1, 2012. (continued)

Pay

Rémunération 0 1 2 3 4 5 6 7 8 9 10

From Less than De Moins de

Deduct from each pay Retenez sur chaque paie

Federal tax deductions

Effective January 1, 2012 Weekly (52 pay periods a year)

Also look up the tax deductions in the provincial table

Retenues d'impôt fédéral

En vigueur le 1 janvier 2012er Hebdomadaire (52 périodes de paie par année)

Cherchez aussi les retenues d'impôt dans la table provinciale

Federal claim codes/Codes de demande fédéraux

391 - 395 52.30 21.10 18.10 12.15 6.15 .20 395 - 399 52.85 21.65 18.65 12.70 6.70 .75 399 - 403 53.40 22.20 19.20 13.25 7.30 1.30 403 - 407 53.95 22.75 19.75 13.80 7.85 1.90 407 - 411 54.55 23.30 20.35 14.35 8.40 2.45 471 - 475 63.50 32.25 29.30 23.30 17.35 11.40 5.40 475 - 479 64.05 32.80 29.85 23.85 17.90 11.95 6.00 479 - 483 64.60 33.40 30.40 24.45 18.45 12.50 6.55 .55 483 - 487 65.15 33.95 30.95 25.00 19.05 13.05 7.10 1.15 487 - 491 65.70 34.50 31.50 25.55 19.60 13.60 7.65 1.70 611 - 619 83.35 52.10 49.15 43.15 37.20 31.25 25.30 19.30 13.35 7.40 1.40 619 - 627 84.45 53.25 50.25 44.30 38.30 32.35 26.40 20.45 14.45 8.50 2.55 627 - 635 85.55 54.35 51.35 45.40 39.45 33.50 27.50 21.55 15.60 9.60 3.65 635 - 643 86.70 55.50 52.50 46.55 40.55 34.60 28.65 22.65 16.70 10.75 4.75 643 - 651 87.80 56.60 53.60 47.65 41.70 35.70 29.75 23.80 17.80 11.85 5.90 651 - 659 88.95 57.70 54.75 48.75 42.80 36.85 30.85 24.90 18.95 12.95 7.00 659 - 667 90.05 58.85 55.85 49.90 43.90 37.95 32.00 26.00 20.05 14.10 8.15 667 - 675 91.15 59.95 56.95 51.00 45.05 39.05 33.10 27.15 21.15 15.20 9.25 675 - 683 92.30 61.05 58.10 52.10 46.15 40.20 34.20 28.25 22.30 16.35 10.35 683 - 691 93.40 62.20 59.20 53.25 47.25 41.30 35.35 29.40 23.40 17.45 11.50 851 - 859 119.25 88.05 85.05 79.10 73.15 67.15 61.20 55.25 49.25 43.30 37.35 859 - 867 120.95 89.75 86.75 80.80 74.80 68.85 62.90 56.90 50.95 45.00 39.00 867 - 875 122.60 91.40 88.40 82.45 76.50 70.55 64.55 58.60 52.65 46.65 40.70 875 - 883 124.30 93.10 90.10 84.15 78.15 72.20 66.25 60.25 54.30 48.35 42.40 883 - 891 126.00 94.75 91.80 85.85 79.85 73.90 67.95 61.95 56.00 50.05 44.05

*You normally use claim code ''0'' only for non-resident employees. However, if you have non-resident employees who earn less than the minimum amount shown in the ''Pay'' column, you may not be able to use these tables. Instead, refer to the ''Step-by-step calculation of tax deductions'' in Section ''A'' of this publication.

Saskatchewan provincial tax deductions Retenues d'impôt provincial de la Saskatchewan

Effective January 1, 2012 En vigueur le 1 janvier 2012er

Weekly (52 pay periods a year) Hebdomadaire (52 périodes de paie par année)

Also look up the tax deductions Cherchez aussi les retenues d'impôt

in the federal table dans la table fédérale

Provincial claim codes/Codes de demande provinciaux Pay

Rémunération ₀ ₁ ₂ ₃ ₄ ₅ ₆ ₇ ₈ ₉ ₁₀

From Less than De Moins de

Deduct from each pay Retenez sur chaque paie 393 - 395 40.75 9.15 7.15 3.05 395 - 397 40.95 9.35 7.35 3.25 397 - 399 41.20 9.55 7.55 3.45 399 - 401 41.40 9.80 7.75 3.65 401 - 403 41.60 10.00 7.95 3.90 473 - 477 49.05 17.45 15.45 11.35 7.30 3.25 477 - 481 49.50 17.90 15.85 11.75 7.70 3.65 481 - 485 49.90 18.30 16.25 12.20 8.10 4.05 485 - 489 50.30 18.70 16.65 12.60 8.55 4.45 .40 489 - 493 50.70 19.10 17.05 13.00 8.95 4.85 .80 633 - 641 65.70 34.10 32.05 28.00 23.90 19.85 15.75 11.70 7.65 3.55 641 - 649 66.50 34.90 32.85 28.80 24.75 20.65 16.60 12.50 8.45 4.40 .30 649 - 657 67.35 35.70 33.70 29.60 25.55 21.50 17.40 13.35 9.30 5.20 1.15 657 - 665 68.15 36.55 34.50 30.45 26.35 22.30 18.25 14.15 10.10 6.05 1.95 665 - 673 68.95 37.35 35.35 31.25 27.20 23.10 19.05 15.00 10.90 6.85 2.80 673 - 681 69.80 38.20 36.15 32.10 28.00 23.95 19.85 15.80 11.75 7.65 3.60 681 - 689 70.60 39.00 36.95 32.90 28.85 24.75 20.70 16.65 12.55 8.50 4.40 689 - 697 71.45 39.80 37.80 33.70 29.65 25.60 21.50 17.45 13.40 9.30 5.25 697 - 705 72.25 40.65 38.60 34.55 30.45 26.40 22.35 18.25 14.20 10.15 6.05 705 - 713 73.05 41.45 39.45 35.35 31.30 27.20 23.15 19.10 15.00 10.95 6.90 833 - 841 86.75 55.15 53.10 49.05 45.00 40.90 36.85 32.80 28.70 24.65 20.60 841 - 849 87.75 56.15 54.10 50.05 45.95 41.90 37.85 33.75 29.70 25.60 21.55 849 - 857 88.70 57.10 55.10 51.00 46.95 42.90 38.80 34.75 30.65 26.60 22.55 857 - 865 89.70 58.10 56.05 52.00 47.90 43.85 39.80 35.70 31.65 27.60 23.50 865 - 873 90.70 59.05 57.05 52.95 48.90 44.85 40.75 36.70 32.65 28.55 24.50

Reproduced with the permission of the Minister of Public Works and Government Services, 2012.

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The column headed Hospital Insurance in Exhibit A.2 shows the amounts withheld to pay for hospital insurance for the employees and their families. The total with-held from all employees is a current liability of the employer until paid to the insur-ance company. Likewise, the total withheld for employees’ union dues is a current liability until paid to the union.

Additional columns may be added to the payroll register for any other deductions that occur sufficiently often to warrant special columns. For example, a company that regularly deducts amounts from its employees’ pay for Canada Savings Bonds may add a special column for this deduction.

An employee’s gross pay less total deductions is the employee’s net pay and is entered in the Net Pay column. The total of this column is the amount the employ-ees are to be paid. The numbers of the cheques used to pay the employemploy-ees are en-tered in the column headed Cheque Number.

The Distribution columns are used to classify the various salaries in terms of dif-ferent kinds of expense. Here you enter each employee’s gross salary in the proper column according to the type of work performed. The column totals then indicate the amounts to be debited to the salary expense accounts.

Recording the Payroll

The entry to record the payroll shown in Exhibit A.2 is:

March 10 Sales Salaries Expense ... 2,050.00 Ofﬁ ce Salaries Expense ... 1,514.00

EI Payable ... 65.22

Employees’ Income Taxes Payable ... 478.55

Employees’ Hospital Insurance Payable . 120.00

CPP Payable ... 156.43

Salaries Payable ... 2,743.80

To record the March 10 payroll.

The debits of the entry were taken from the payroll register’s distribution column totals. They charge the employees’ gross earnings to the proper salary expense ac-counts. The credits to EI Payable, Employees’ Income Taxes Payable, Employees’ Hospital Insurance Payable, and CPP Payable record these amounts as current liabil-ities. The credit to Salaries Payable (also called Payroll Payable, Wages Payable, or Accrued Salaries Payable, etc.) records as a liability the net amount to be paid to the employees.

4. What constitutes the employee’s gross pay?

5. What is the employee’s net pay?

Do Quick Study questions: QS A-2, QS A-3, QS A-4, QS A-5, QS A-6 C H E C K P O I N T

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Paying the Employees

Almost every business pays its employees by cheque or through electronic funds transfer (EFT). Employers give each employee an earnings statement each payday showing the hours worked, gross pay, deductions, and net pay, as shown in Exhibit A.4.

Employee’s Individual Earnings Record

An employee’s individual earnings record, as shown in Exhibit A.5, provides for each employee, in one record, a full year’s summary of the employee’s working time, gross earnings, deductions, and net pay. In addition, it accumulates informa-tion that:

1. Serves as a basis for the employer’s payroll tax returns.

2. Indicates when an employee’s earnings have reached the maximum amounts for CPP and EI deductions.

3. Supplies data for the T4 slip, which must be given to the employee at the end of the year.

The payroll information on an employee’s individual earnings record is posted from the payroll register. Note the last column of the record. It shows an employee’s earnings to date and is used to determine when the earnings reach maximum amounts and are no longer subject to the various deductions such as CPP and EI.

EXHIBIT A.4 A Payroll Cheque

John Auer

Three hundred twenty-six dollars and twenty-one cents

326.21 March 6, 2012 Employee No. 1517 PAY TO THE ORDER OF GRASSLAND INDUSTRIES Lloydminster Credit Union

Lloydminster, Saskatchewan

Date $

GRASSLAND INDUSTRIES

Loon Lake, Saskatchewan

STATEMENT OF EARNINGS AND DEDUCTIONS FOR EMPLOYEE'S RECORDS—DETACH BEFORE CASHING CHEQUE Total Hours O.T. Hours Reg. Pay Rate Reg-ular Pay O.T. Prem. Pay Gross Pay EI Pre-mium Income Taxes CP Plan Hosp. Ins. Total Deduc-tions Net Pay 40 10.00 400.00 400.00 7.32 32.00 16.47 18.00 73.79 326.21

Pass

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EXHIBIT A.5

Employee’s 2012 Individual Earnings Record

Employee’s Name ______________________________ SIN No. ___________________________ Employee No. __________________________

Home Notify in Case Phone

Address ______________________________________ of Emergency ___________________________ No. ______________________________

Date of

Employed ________________________________________ Termination _________________________ Reason _______________________________

Date of Date Male (X) Married ( ) Number of Pay

Birth _________________ Becomes 65 __________________ Female ( ) Single (X) Exemptions 0 Rate $10.00 Occupation _______________________________________________________ __________ Place ___________________________________________

Time Time

Date Lost Worked

Total

Per. Rea- O.T. Reg. O.T. Gross EI Income Hosp. Deduc- Net Cheque lative Ends Paid Hrs. son Total Hours Pay Pay Pay Prem Taxes Ins. CPP tions Pay No. Earnings 6-Jan 6-Jan 40 400.00 400.00 7.32 32.00 18.00 16.47 73.79 326.21 400.00 13-Jan 13-Jan 40 400.00 400.00 7.32 32.00 18.00 16.47 73.79 326.21 800.00 20-Jan 20-Jan 40 400.00 400.00 7.32 32.00 18.00 16.47 73.79 326.21 1,200.00 27-Jan 27-Jan 4 Sick 36 360.00 360.00 6.59 22.25 18.00 14.49 61.33 298.67 1,560.00 3-Feb 3-Feb 40 400.00 400.00 7.32 32.00 18.00 16.47 73.79 326.21 1,960.00 10-Feb 10-Feb 40 400.00 400.00 7.32 32.00 18.00 16.47 73.79 326.21 2,360.00

25-May 25-May 40 400.00 400.00 7.32 32.00 18.00 16.47 73.79 326.21 8,400.00

John

Auer

123-456-789 114

Box 68, Loon Lake

Margaret Auer

964-9834

May 15, 1999

June 6, 1972

June 6, 2037

Clerk

Warehouse

Lawn Worker

You take a summer job working for a family friend who runs a small lawn mow-ing service. When the time arrives for your first paycheque, the owner slaps you on the back, gives you full payment in cash, winks, and adds: “No need to pay those high taxes, eh?” What are your responsibilities in this case? Do you take any action?

D E C I S I O N M A K E R Answer—End of chapter

6. What is the purpose of the employee’s individual earnings record? Do Quick Study questions: QS A-7, QS A-8

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MID-APPENDIX DEMONSTRATION PROBLEM

On January 27, the end of its fourth weekly pay period in 2012, Saskat Company’s payroll record showed that its one office employee and two sales employees had earned $481 (claim code 2), $645 (claim code 3), and $868 (claim code 4), respec-tively. Each employee has $40 of hospital insurance premiums withheld plus $15 of union dues.

Required

a. Prepare a schedule similar to the register in Exhibit A.2 to summarize deduc-tions by employee and in total. Use the tables in Exhibit A.3 to determine the appropriate CPP, EI, and income tax to be withheld.

b. Give the journal entry to record the payroll on January 27.

Analysis Component:

What effect does the entry in part (b) have on the balance sheet?

SOLUTION

a.

Deductions Payment Distribution

Gross EI Income Hospital Union Total Net Cheque Sales Office

Pay Premium Taxes Insurance CPP Dues Deductions Pay Number Salaries Salaries

2 481.00 8.80 46.25 40.00 20.48 15.00 130.53 350.47 754 481.00

4 645.00 11.80 76.45 40.00 28.60 15.00 171.85 473.15 758 645.00

4 868.00 15.88 125.40 40.00 39.63 15.00 235.91 632.09 759 868.00

1,994.00 36.48 248.10 120.00 88.71 45.00 538.29 1,455.71 481.00 1,513.00

b.

January 27 Ofﬁ ce Salaries Expense ... 481.00 Sales Salaries Expense ... 1,513.00

Employees’ Hospital Insurance Payable .. 120.00

CPP Payable ... 88.71

Employees’ Union Dues Payable ... 45.00

Salaries Payable ... 1,455.71 To record payroll deductions for pay period

ending January 27.

The entry in part (b) will cause liabilities, specifically current liabilities, to increase and equity to decrease.

Pass

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PAYROLL DEDUCTIONS REQUIRED

OF THE EMPLOYER

Under the previous discussion of the Canada (or Quebec) Pension Plan (CPP or QPP), it was pointed out that pension deductions are required in like amounts on both employed workers and their employers. A covered employer is required by law to deduct from the employees’ pay the amounts of their CPP (or QPP), but in addi-tion, the employer must pay an amount equal to the sum of the employees’ CPP (or QPP). Commonly, the amount deducted by the employer is recorded at the same time as the payroll to which it relates is recorded. Also, since both the employees’ and employer’s shares are reported on the same form and are paid in one amount, the liability for both is normally recorded in the same liability account, the CPP (or QPP) Payable account.

An employer is also required to pay Employment Insurance (EI) that is 1.4 times the sum of the employees’ EI deductions. Most employers record both of these pay-roll deductions with a journal entry that is made at the time of recording the paypay-roll to which they relate. For example, the entry to record the employer’s amounts on the payroll in Exhibit A.2 is:

LO3 _{Calculate the payroll costs} levied on employers and prepare the entries to record the accrual and payment of these amounts.

March 10 EI Expense (1.4 $65.22) ... 91.31 CPP (or QPP) Expense ... 156.43

CPP (or QPP) Payable ... 156.43 To record the employer’s payroll taxes.

The debit in the entry records as an expense the payroll taxes levied on the em-ployer, and the credits record the liabilities for the taxes.

Paying the Payroll Deductions

Income tax, EI, and CPP (or QPP) amounts withheld each payday from the employ-ees’ pay plus the employer’s portion of EI and CPP (or QPP) are current liabilities until paid to the Receiver General for Canada. The normal method of payment is to pay the amounts due at any chartered bank or remit them directly to the Receiver General for Canada. Payment of these amounts is usually required to be made before the 15th of the month following the month that deductions were made from the earnings of the employees. Large employers are required to remit on the 10th and 25th of each month.

For simplicity, we assume the payment of the March 10 amounts recorded above is made the following day. Recall, however, that the employer must remit the amounts withheld from the employee as determined in Exhibit A.2 plus the em-ployer’s portion recorded above. The following T-accounts summarize all of these amounts:

Hospital Insurance Payable

120.00*

Employees’ Income Taxes Payable

478.55* EI Payable 65.22* 91.31** 156.53 _{CPP (or QPP) Payable} 156.43* 156.43** 312.86

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The entry to record remittance to the Receiver General for Canada is then: March 11 EI Payable ... 156.53

Employees’ Income Taxes Payable ... 478.55 CPP (or QPP) Payable ... 312.86

Cash ... 947.94 To record the remittance of payroll liabilities

to the Receiver General for Canada.

The entry to record remittance to the hospital insurance plan authority is then:

March 11 Employment Hospital Insurance Payable ... 120.00

Cash ... 120.00 To record the remittance of employees’

hospital insurance premiums.

Notice that the payment of payroll liabilities is recorded in the same manner as pay-ment of any other liabilities.

Accruing Payroll Deductions on Wages

Mandatory payroll deductions are levied only on wages actually paid. Accrued wages are not subject to payroll deductions until they are paid. However, to satisfy the matching principle, both accrued wages and the related accrued deductions should be recorded at the end of an accounting period. In reality, because the amounts of such deductions vary little from one accounting period to the next and often are small in amount, many employers apply the materiality principle and do not accrue payroll deductions.

7. When are the payments for employee deductions due to the Receiver General for Canada?

Do Quick Study questions: QS A-9, QS A-10 C H E C K P O I N T

EMPLOYEE (FRINGE) BENEFIT COSTS

Many companies pay for a variety of benefits called employee fringe benefits in addition to the wages earned by employees and the related amounts paid by the employer. For example, an employer may pay for part (or all) of the employees’ medical insurance, life insurance, and disability insurance. Another typical em-ployee benefit involves employer contributions to a retirement income plan. Work-ers’ compensation and vacation pay are required to be paid by employers according to the legislation in each province.

Workers’ Compensation

Legislation is in effect in all provinces for payments to employees for an injury or disability arising out of or in the course of their employment. Under the provincial workers’ compensation acts, employers are required to insure their employees against injury or disability that may arise as a result of employment. Premiums are normally based on (1) accident experience of the industrial classification to which each business is assigned and (2) the total payroll.

LO4 _{Calculate and record} employee fringe benefit costs.

Pass

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Procedures for payment are as follows:

2 In Ontario, the Workers’ Compensation Board is called the Workplace Safety and Insurance Board (WSIB). In BC, it is called WorkSafeBC.

3 Some payments of employee beneﬁ ts must be added to the gross salary of the employee for the purpose of calculating income tax, CPP, and EI payroll deductions. However, in this chapter and in the problems at the end of the chapter, the possible effect of employee beneﬁ t costs on payroll taxes is ignored to avoid undue complexity in the introductory course.

1. At the beginning of each year, every covered employer is required to submit to the Workers’ Compensation Board2_{an estimate of the expected payroll}

for the coming year.

2. Provisional premiums are then established by the board relating estimated requirements for disability payments to estimated payroll. Provisional pre-mium notices are then sent to all employers.

3. Provisional premiums are normally payable in three to six installments during the year.

4. At the end of each year, actual payrolls are submitted to the board, and ﬁ nal assessments are made based on actual payrolls and actual payments. Pre-miums are normally between 1% and 3% of gross payroll and are borne by the employer.

Employer Contributions to Employee Insurance

and Retirement Plans

The entries to record employee benefits costs depend on the nature of the benefit. Some employee retirement plans are quite complicated and involve accounting pro-cedures that are too complex for discussion in this introductory course. In other cases, however, the employer simply makes periodic cash contributions to a retire-ment fund for each employee and records the amounts contributed as expense. Other employee benefits that require periodic cash payments by the employer in-clude employer payments of insurance premiums for employees.

In the case of employee benefits that simply require the employer to make peri-odic cash payments, the entries to record the employer’s obligations are similar to those used for payroll deductions.3_{For example, assume that an employer with five}

employees has agreed to pay medical insurance premiums of $40 per month for each employee. The employer will also contribute 10% of each employee’s salary to a re-tirement program. If each employee earns $2,500 per month, the entry to record these employee benefits for the month of March is:

March 31 Beneﬁ ts Expense ... 1,450

Employees’ Medical

Insurance Payable ... 200

Employees’ Retirement Program

Payable ... 1,250

To record employee beneﬁ ts; ($2,500 5) 10% $1,250.

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Vacation Pay

Employers are required to allow their employees paid vacation time (at a minimum rate of 4% of gross earnings) as a benefit of employment. For example, many em-ployees receive two weeks’ vacation in return for working 50 weeks each year. The effect of a two-week vacation is to increase the employer’s payroll expenses by 4% (2/50 0.04). After five years of service, most employees are entitled to a three-week vacation (i.e., 3/49 6.12%). However, new employees often do not begin to accrue vacation time until after they have worked for a period of time, perhaps as much as a year. The employment contract may say that no vacation is granted until the em-ployee works one year, but if the first year is completed, the emem-ployee receives the full two weeks. Contracts between the employer and employee may allow for vaca-tion pay in excess of the 4% minimum.

To account for vacation pay, an employer should estimate and record the addi-tional expense during the weeks the employees are working and earning the vaca-tion time. For example, assume that a company with a weekly payroll of $20,000 grants two weeks’ vacation after one year’s employment. The entry to record the es-timated vacation pay is:

Date Beneﬁ ts Expense ... 800

Estimated Vacation Pay Liability ... 800 To record estimated vacation pay;

$20,000 0.04 $800.

Date Estimated Vacation Pay Liability ... xxx

EI and CPP (or QPP) Payable ... xxx

Employees’ Income Taxes Payable ... xxx

Other Withholding Liability Accounts Such as Employees’ Hospital

Insurance Payable... xxx

Salaries Payable ... xxx

To record payroll.

As employees take their vacations and receive their vacation pay, the entries to re-cord the vacation payroll take the following general form:

8. How is the cost of Workers’ Compensation determined? Do Quick Study question: QS A-11

C H E C K P O I N T

Mandatory payroll deductions and employee benefits costs are often a major cate-gory of expense incurred by a company. They may amount to well over 25% of the salaries earned by employees.

CRITICAL THINKING CHALLENGE Refer to the Critical Thinking Challenge questions at the beginning of the appendix. Compare your answers to those suggested on Connect. Lar51503_app_001-033.indd Page A-16 01/11/12 3:08 PM user-f502

Pass

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S U M M A R Y

LO1 _{Identify the taxes and other items frequently} withheld from employees’ wages. Amounts withheld from employees’ wages include federal income taxes, Canada (or Quebec) Pension Plan (CPP or QPP), and Employment Insurance (EI). Payroll costs levied on employers include EI and CPP (or QPP).

An employee’s gross pay may be the employee’s specified wage rate multiplied by the total hours worked plus an over-time premium rate multiplied by the number of overover-time hours worked. Alternatively, it may be the given periodic salary of the employee. Taxes withheld and other deductions for items such as union dues, insurance premiums, and charitable contribu-tions are subtracted from gross pay to determine the net pay. LO2 _{Make the calculations necessary to prepare a} payroll register and prepare the entries to record and pay payroll liabilities. A payroll register is used to summa-rize all employees’ hours worked, regular and overtime pay,

payroll deductions, net pay, and distribution of gross pay to expense accounts during each pay period. It provides the necessary information for journal entries to record the accrued payroll and to pay the employees.

LO3_{Calculate the payroll costs levied on employers} and prepare the entries to record the accrual and pay-ment of these amounts. When a payroll is accrued at the end of each pay period, payroll deductions and levies should also be accrued with debits and credits to the appropriate expense and liability accounts.

LO4_{Calculate and record employee fringe benefit} costs. Fringe benefit costs that involve simple cash payments by the employer should be accrued with an entry similar to the one used to accrue payroll levies. Legislated employee benefits related to Workers’ Compensation and vacation pay are paid for by the employer.

Lawn Worker

You need to be concerned about being an accomplice to un-lawful payroll activities. Not paying federal and provincial taxes on wages earned is unlawful and unethical. Such payments

won’t provide CPP and EI contributions. The best

course of action is to request payment by cheque. If this fails to change the owner’s payment practices, you must consider quitting this job.

G U I D A N C E A N S W E R T O D E C I S I O N M A K E R

G U I D A N C E A N S W E R S T O C H E C K P O I N T

1. Employment Insurance is designed to alleviate hardships caused by interruptions in earnings through unemployment.

2. On or before the last day in February.

3. Deductions for Canada Savings Bonds, health or life insur-ance premiums, loan repayments, and donations to chari-table organizations.

4. Regular pay plus overtime pay.

5. Gross pay less all the deductions.

6. An employee’s individual earnings record serves as a basis for the employer’s tax returns, indicates when the maximum CPP (or QPP) and EI deductions have been reached, and supplies the data for the employees’ T-4 slips.

7. Normally by the 15th of the following month; large em-ployers must remit on the 10th and 25th of each month.

8. Premiums are based on the accident experience in the specific industry and on the size of the employer’s payroll.

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DEMONSTRATION PROBLEM

Presented below are various items of information about three part-time employees of the Saskatchewan Consulting Company for the week ending March 30, 2012.

Required

In solving the following requirements, round all amounts to the nearest whole penny. Prepare schedules that determine, for each employee and for all employees combined, the following information:

1. Wages earned for the week, total overtime pay (if any), and gross wages. 2. Vacation pay accrued for the week.

3. Costs imposed on the employer. 4. Employees’ net pay for the week.

5. Employer’s total payroll-related cost (wages, mandatory deductions, and fringe benefits).

Present journal entries to record the following: 6. Payroll expense.

7. Payroll deductions and employees’ benefits expense. 8. Remittance to the Receiver General for Canada on April 15.

What percentage of the total payroll-related cost to the employer represents deduc-tions and fringe benefits versus gross pay? Round your answers to two decimal places.

Planning the Solution

• Calculate the gross pay for each employee.

• Calculate the amounts deducted for all employees and their net pay. • Calculate the employer’s share of payroll deductions.

• Prepare the necessary journal entries. • Address the analysis component.

Billings Dephir Singe

Wage rate (per hour) ... $ 75.00 $ 60.00 $ 18.00

Overtime premium (when >40 hours) ... 50% 50% 50%

Annual vacation ... 2.5 weeks 2.5 weeks 2.5 weeks Cumulative wages as of

March 30, 2012: ... $28,500.00 $52,600.00 $10,800.00 For the week (pay period) ended

March 30, 2012:

Hours worked ... 8 22 48

Medical insurance:

Employer’s contribution ... $ 25.00 $ 25.00 $ 25.00

Withheld from employee ... 18.00 18.00 18.00

Union dues withheld ... 50.00 70.00 50.00 Income tax withheld ... 86.40 321.05 185.60

Employment Insurance withheld ... 10.98 — 17.18

Canada Pension withheld ... 26.37 — 43.00

Payroll deduction rates:

Employment Insurance ... 1.83% to an annual maximum of $839.97 Canada Pension Plan ... 4.95% less annual exemption of $3,500;

maximum per year is $2,306.70

Pass

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SOLUTION

1. The gross wages (including overtime) for the week:

Billings Dephir Singe Total

Regular wage rate ... $ 75.00 $ 60.00 $ 18.00 Regular hours ... ⫻ 8 ⫻ 22 ⫻ 48

Regular pay ... $600.00 $1,320.00 $864.00 $2,784.00 Overtime premium ... $ 37.50 $ 30.00 $ 9.00

Overtime hours ... -0- ⫻ -0- ⫻ 8

Total overtime pay ... $ -0- $ -0- $ 72.00 $ 72.00 Gross wages ... $600.00 $1,320.00 $936.00 $2,856.00

CPP (1.0) ... $26.37 — $43.00 $ 69.37 Employment Insurance (1.4) ... 15.37 — 24.05 39.42 Totals ... $41.74 — $67.05 $108.79

Annual vacation ... 2.5 weeks 2.5 weeks 2.5 weeks Weeks worked in year ... 49.5 weeks 49.5 weeks 49.5 weeks Vacation pay as a percentage of

regular pay ... 5.05% 5.05% 5.05% Regular pay this week ... ⫻ $600.00 ⫻ $1,320.00 ⫻ $936.00

Vacation pay this week ... $ 30.30 $ 66.66 $ 47.27 $144.23

Earnings Subject to Earnings

Through Earnings Employment

Employees March 30 This Week CPP Insurance

Billings ... $28,500.00 $ 600.00 $ 532.693 _{$ 600.00}

Dephir1_... _52,600.00 _1,320.00 _— _—

Singe2_... _10,800.00 _936.00 _868.693_936.00

Totals ... $2,856.00 $1,402.00 $1,536.00

1_{Dephir’s earnings have exceeded the CPP maximum of $50,100 and EI maximum of $45,900 and the} maximum deductions of $2,306.70 (CPP) and $839.97 (EI). Therefore, neither CPP nor EI is deducted. 2_{Deductions would cease when the yearly maximum deduction of $839.97 was reached.}

3_{Recall that the ﬁ rst $3,500 of income is exempt from CPP. This represents $67.31/week (}_⫽_$3,500/52 weeks).

2. The vacation pay accrued for the week:

The information in the following table is needed for part 3:

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4. The net amount paid to the employees:

Regular pay ... $600.00 $1,320.00 $864.00 $2,784.00 Overtime pay ... -0- -0- 72.00 72.00 Gross pay ... $600.00 $1,320.00 $936.00 $2,856.00 Withholdings:

Income tax withholding ... $ 86.40 $ 321.05 $185.60 $ 593.05 CPP withholding ... 26.37 — 43.00 69.37 EI withholding ... 10.98 — 17.18 28.16 Medical insurance ... 18.00 18.00 18.00 54.00 Union dues ... 50.00 70.00 50.00 170.00 Total withholdings ... $191.75 $ 409.05 $313.78 $ 914.58 Net pay to employees ... $408.25 $ 910.95 $622.22 $1,941.42

Regular pay ... $600.00 $1,320.00 $ 864.00 $2,784.00 Overtime pay ... -0- -0- 72.00 72.00 Gross pay ... $600.00 $1,320.00 $ 936.00 $2,856.00 Deductions and fringe benefits:

CPP ... $ 26.37 $ — $ 43.00 $ 69.37 EI ... 15.37 — 24.05 39.42 Vacation ... 30.30 66.66 47.27 144.23 Medical insurance ... 25.00 25.00 25.00 75.00 Total deductions and fringe benefits ... $ 97.04 $ 91.66 $ 139.32 $ 328.02 Total payroll-related cost ... $697.04 $1,411.66 $1,075.32 $3,184.02

2012

March 27 Salary Expense ... 2,856.00

CPP Payable ... 69.37 EI Payable ... 28.16

Employees’ Medical Insurance Payable .. 54.00

Employees’ Union Dues Payable ... 170.00

Salaries Payable ... 1,941.42 To record payroll expense.

2012 March 27 CPP Expense ... 69.37 EI Expense ... 39.42 Beneﬁ ts Expense ... 219.23 CPP Payable ... 69.37 EI Payable ... 39.42 Accrued Vacation Pay Payable ... 144.23

Employees’ Medical Insurance Payable .. 75.00

To record employer’s share of payroll deductions and beneﬁ ts expense. 5. The total payroll-related cost to the employer.

6. Journal entry for payroll expense:

7. Journal entry for payroll deductions and employees’ benefit expense: Lar51503_app_001-033.indd Page A-20 01/11/12 3:08 PM user-f502

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8. Journal entry to record the remittance to the Receiver General for Canada:

2012

Apr. 15 EI Payable1_... _67.58

CPP Payable2 ..._138.74

Cash ... 799.37 Calculations: 1. $28.16 (Employees’ Portion) $39.42 (Employer’s Portion) $67.58 2. $69.37 (Employees’ Portion) $69.37 (Employer’s Portion) $138.74 Analysis Component:

Deductions and fringe benefits represent 10.30% ( $328.02/$3,184.02) of total payroll-related costs, and gross pay is 89.70% ( $2,856.00/$3,184.02).

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G L O S S A R Y

Canada Pension Plan A national contributory retirement pension scheme.

Employee fringe benefits Payments by an employer, in addition to wages and salaries, that are made to acquire employee ben-efits such as insurance coverage and retirement income.

Employee’s gross pay The amount an employee earns before any deductions for taxes or other items such as union dues or insurance premiums.

Employee’s individual earnings record A record of an employee’s hours worked, gross pay, deductions, net pay, and certain personal information about the employee.

Employee’s net pay The amount an employee is paid, determined by subtracting from gross pay all deductions for taxes and other items that are withheld from the employee’s earnings.

Employment Insurance An employee/employer–financed unemployment insurance plan.

Payroll deductions Amounts deducted from an employee’s pay, usually based on the amount of an employee’s gross pay.

Personal tax credits Amounts that may be deducted from an individual’s income taxes and that determine the amount of income taxes to be withheld.

TD1 A form, known as the Personal Tax Credit Return, that

determines how much income tax is to be withheld by the employer based on the employee’s exemptions.

Wage bracket withholding table A table showing the amounts to be withheld from employees’ wages at various levels of earnings.

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C O N C E P T R E V I E W Q U E S T I O N S

1. Who pays the contributions to the Canada Pension

Plan?

2. Who pays premiums under the Workers’

Compensa-tion laws?

3. Who pays federal Employment Insurance? What is the

rate?

4. What are the objectives of Employment Insurance laws?

5. To whom and when are payroll deductions remitted?

6. What determines the amount that must be deducted

from an employee’s wages for income taxes?

7. What is a tax withholding table?

8. What is the Canada Pension Plan deduction rate for

self-employed individuals?

9. What information is accumulated on an employee’s

in-dividual earnings record? Why must this information be accumulated? For what purposes is the information used?

10. What payroll charges are levied on the employer? What amounts are deducted from the wages of an employee?

11. What are employee fringe benefits? Name some examples.

Q U I C K S T U D Y

QS A-1

Payroll expenses LO1

A company deducts $260 in Employment Insurance and $205 in Canada Pension from the weekly pay-roll of its employees. How much is the company’s expense for these items for the week?

QS A-2

Preparing payroll journal entries LO2

Tracon Co. has six employees, each of whom earns $3,000 per month. Income taxes are 20% of gross pay and the company deducts EI and CPP. Prepare the March 31 journal entry to record payroll for the month.

QS A-3

Paying employees LO2

Use the information in QS A-2 to record the payment of the wages to the employees for March. Lar51503_app_001-033.indd Page A-22 01/11/12 3:08 PM user-f502

Pass

3rd

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QS A-4

Completing a payroll register LO2

Deductions Pay Distribution

Gross EI Income Total Office Sales

Employee Pay Premium Taxes CPP Deductions Net Pay Salaries Salaries

Johnson, S. 1,200.00 21.96 266.95 56.07

Waverley, N. 530.00 9.70 63.30 22.90

Zender, B. 675.00 12.35 98.15 30.08

Totals 2,405.00 44.01 428.40 109.05

Required Prairie Rigging’s three employees are paid weekly. Waverley works in the office and Johnson and Zender are sales representatives. Complete the payroll register above for the week ended March 9, 2012.

QS A-5

Completing a payroll register using tables LO2

Deductions Pay

Gross EI Income Total Salaries

Employee Pay Premium Taxes CPP Deductions Net Pay Expense

Bentley, A. 2,010.00

Craig, T. 2,115.00

Totals 4,125.00

Required Meadow Lake Groceries has two employees who are paid monthly. Using the tables at the end of the appendix, complete the payroll register above for the month ended March 31, 2012, assuming both employees’ TD1 claim code is 1.

QS A-6

Completing a payroll register by calculating deductions LO2

Withers, S. 2,500.00 2,500.00

Volt, C. 1,800.00 1,800.00

Totals

Required Maidstone Plumbing Services’ two employees are paid biweekly. Assuming a tax rate of 30%, complete the payroll register above for the two-week period ended February 24, 2012.

QS A-7

Payroll journal entry LO2

Racon Co. has eight employees, each of whom earns $3,500 per month. Income taxes are 20% of gross pay and the company deducts EI and CPP. Prepare the March 31, 2012, journal entry to record Racon’s salaries expenses for the month.

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QS A-8

Payroll journal entry LO2

Chandler Tailors pays its three part-time employees monthly. The following information is available for the February 2012 payroll:

Berkley, M. 575.00 10.52 0.00 14.03 24.55 550.45 575.00

Cander, O. 840.00 15.37 0.00 27.14 42.51 797.49 840.00

Meister, P. 1,020.00 18.67 0.00 36.05 54.72 965.28 1,020.00

Totals 2,435.00 44.56 0.00 77.22 121.78 2,313.22 575.00 1,860.00

Required Prepare the journal entry to record payroll expenses for the month.

QS A-9

Recording employer’s payroll deductions LO3

Refer to the information in QS A-8. Prepare a journal entry to record Chandler Tailors’ share of payroll deductions.

QS A-10

Payment of payroll deductions LO3

Refer to the information in QS A-8 and QS A-9. Prepare a journal entry to record payment by Chandler Tailors to the Receiver General for Canada on March 15.

QS A-11

Recording fringe benefit costs LO4

Racon Co. (see QS A-7) contributes 8% of an employee’s salary to a retirement program, pays medical insurance premiums of $60 per employee, and pays vacation allowance equivalent to 5% of the employ-ee’s salary. Prepare a journal entry to record the fringe benefit costs for March.

E X E R C I S E S

Exercise A-1

Calculating gross and net pay LO2

Julie Leung, an employee of the Import Company, worked 172 hours during the month of January 2012. Her pay rate is $12.50 per hour, and her wages are subject to no deductions other than income taxes, EI, and CPP. The overtime premium is 50% and is applicable to any time greater than 160 hours per month. Calculate her regular pay, overtime premium pay, gross pay, total deductions, and net pay. Use the tables at the end of the appendix to determine the EI, CPP, and income tax deductions (assume claim code 1).

Exercise A-2

Calculating payroll deductions and recording the payroll LO2

The following information as to earnings and deductions for the weekly pay period ended March 9 was taken from a company’s payroll records:

CHECK FIGURE: Net pay $1,830.28 CHECK FIGURE: Total EI withholding $70.64 Earnings

Weekly to End of Health

Employees’ Gross Previous Income Insurance

Names Pay Week Taxes Deductions

Hellena Chea ... $ 720 $12,510 $115.50 $ 24.00

Joseph Lim ... 610 10,320 88.30 24.00

Dino Patelli ... 830 15,500 148.95 36.00

Sharl Qulnata ... 1,700 29,500 460.70 24.00

$3,860 $813.45 $108.00

Required Calculate the employees’ EI and CPP withholdings, the amounts paid to each employee, and prepare a General Journal entry to record the payroll. Assume all employees work in the office. Lar51503_app_001-033.indd Page A-24 01/11/12 3:08 PM user-f502