🟠 Advanced 20 minadvanced path
Payroll Basics: Gross to Net
Payroll is one of the most error-sensitive areas of bookkeeping. Learn the gross-to-net flow and the accounts involved.
Learning objectives
- Compute gross pay for salaried and hourly employees.
- List the standard withholdings and employer taxes.
Step-by-step
1. Gross pay
Salaried: annual salary / pay periods. Hourly: hours × rate + overtime (usually 1.5× above 40/week). Include bonuses and commissions.
2. Employee withholdings
Federal income tax (per W-4), state income tax, Social Security 6.2%, Medicare 1.45%, plus any benefit deductions.
3. Employer taxes
Employer matches SS and Medicare, plus FUTA and SUTA unemployment taxes. These are additional expenses, not deducted from the paycheck.
4. Journal entry
Debit Wages Expense (gross), credit each withholding liability and Cash for net pay. A separate entry books employer taxes.
Key takeaways
- Compute gross pay for salaried and hourly employees.
- List the standard withholdings and employer taxes.
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