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Inventory-based Business
Payroll
Introduction
The MyBooks Professional Payroll system is designed to handle the basic payroll functions for growing businesses. It is designed with flexibility so that a variety of earnings codes, taxes, and miscellaneous deductions may be accommodated.
The major purpose of the Payroll system is to prepare employee checks from time card creation, maintain payroll history, and meet government reporting requirements.
The Payroll function is a multi-step process as follows:
- Regular earnings and deductions for each employee are established from data contained in the Employee file and in the Deduction and Earning Codes file.
- The Enter Time Cards function or the Auto Create Time Cards function builds time cards for each pay period. Temporary deductions and earnings may be entered at this time.
- The Calculate Payroll function uses hours from the Time Card file, along with earnings and deductions information from the Employee file and the Deduction and Earning Codes file, to calculate each paycheck.
- The Print Checks function uses the computed payroll information to print the paychecks and the check register; it posts the information to the Employee file and other history files.
- Job Cost Distribution information is captured during Time Card Entry for retrieval by the Job Cost Tracking package (an optional Add-on Module from Appgen).
- General Ledger Distribution information is posted to the Trial Balance for subsequent creation of the financial statements.
TABLE OF CONTENTS
Set Up Employees
Personnel information for each employee is contained in the Employee file. Using the Set Up Employees function, enter each of your employees along with their name, address, social-security number, pay rate, marital status, the regular earnings code, and the individual factors for each type of deduction.
Irregular deductions and additional earnings may be added manually during the Enter Time Card process.
How Deductions are Computed
The "Calculate Payroll" function computes the actual deduction amounts for each employee as described below:
- The employee's master record in the Employee file is read to determine which deductions are to be taken this pay period. The individual "factors" (martial status, number of personal exemptions, limits, etc.) for each deduction are also contained in the employee's master record.
- For each deduction to be taken on this paycheck, the Deduction and Earning Codes file is read to determine the computation method to be used for this particular deduction.
- Based on the deduction computation method and the individual factors for this particular employee, the actual amount of this deduction is computed.
The deduction computation methods and the meanings of the individual factors for each computation method are described later. Setting up an individual's deductions is also discussed later.
The Deduction and Earning Codes File
The formulas, tables, and methods for calculating deductions are defined by the deduction code records in the Deduction and Earning Codes file. This file also contains earnings code records which group earnings into different categories for tax calculation purposes: e.g. taxable earnings, non-taxable, FICA-exempt, etc. Company wide parameters for each type of earnings or deduction, such as the general ledger distribution account number or earnings multiplier, are contained in each Deduction or Earnings Code record.
Set Up Earning Codes
The Earnings Code records define the taxable status of earnings, as well as categorizing the earnings into several types of pay (regular, overtime, vacation, etc.). A separate earnings code record should be set up for each combination of taxable status/pay type to be accommodated by the system.
The pay types classification is used to group earnings into categories for tracking employee benefits and costs. Each earnings code specifies a general ledger account for posting. The Employee Payroll Recap report then prints M-T-D, Q-T-D, and Y-T-D hours and earnings for each earnings code for each employee.
Set Up Deduction Codes
An unlimited number of deduction code records may be set up in the Deduction and Earning Code file. These codes are grouped into three major categories as follows:
- Standard deductions such as group insurance, credit union loans and savings, and employee advances.
- Tax withholding deductions such as federal, state, and local income taxes and FICA deductions.
- Tax-exempt deductions such as annuity plan contributions and tax-free insurance premiums.
Tax-exempt deductions reduce the gross earnings that are subject to Federal Withholding Tax. The three types of these tax-exempt deductions are:
- Type N2 which is exempt from Federal Withholding Tax (FWT)
- Type N3 which is exempt from Social Security and Medicare Tax (FICA)
- Type N4 which is exempt from all taxes (FWT, FICA, state, local, etc.)
Deduction Computation Methods
There are ten different computation methods (formulas) by which deduction amounts may be computed. The actual deduction amounts for each employee will be determined both by the deduction method used and by individual "factors" from the employee's master record. Some examples of these individual factors are marital status, number of exemptions, percentage of gross pay to be deducted, and the maximum amount to be deducted.
Each of these methods of deduction and the associated factors from the employee master record are detailed below.
S1 Method
This deduction computation method computes the deduction based on an FWT-like annual tax table (Federal Withholding Tax Table) like the one below.
Example:
But Base % to
Table Over Not Over Amount Deduct
----- ---------- ------------ --------- ------
S $ 0.00 $ 2,600.00 $ 0.00 0.000
S 2,600.00 24,750.00 0.00 15.000
S 24,750.00 51,950.00 3,712.50 28.000
S 51,950.00 119,350.00 14,546.00 31.000
S 119,350.00 257,900.00 36,998.50 36.000
S 257,900.00 9,999,999.99 92,844.00 39.600
M $ 0.00 6,400.00 $ 0.00 0.000
M 6,400.00 43,050.00 0.00 15.000
M 43,050.00 86,550.00 6,457.50 28.000
M 86,550.00 147,650.00 24,234.00 31.000
M 147,650.00 260,550.00 45,771.50 36.000
M 260,550.00 9,999,999.99 93,798.00 39.600
The group of table lines marked "S" is the tax table for single marital status. The group marked "M" is the tax table for married marital status. The total amount of the deduction is the sum of the Base Amount plus a percentage differential of the gross pay that is over the first amount ("Over" column) for this line.
For example, the tax deduction for a taxpayer who is single with two exemptions, earning $600 per week, would be calculated as follows:
First, the annual earnings are computed by taking 600.00
the weekly pay and multiplying it by 52: * 52.00
---------
31,200.00
Then the personal exemptions (2) are multiplied
by the exemption amount (see below) and sub-tracted
from the annual earnings amount: - 5.000.00 (2*2,500)
---------
This result is the base amount: 26,200.00
- 24,750.00
Using the table above, the amount over the ---------
base equals: 1,450.00
Multiply this by the corresponding percentage to * .28
compute the tax over the base amount: ---------
406.00
and add it to the base tax: + 3,712.50
---------
4,118.50
Divide by 52, and the tax to be withheld from one ÷ 52.00
paycheck is: ---------
79.20
The actual amount to be deducted for an individual employee is based upon the tax table, as well as the factors for this deduction code in this employee's master record.
The four factors contained in each employee's master record are described below:
- Factor one indicates whether the tax is computed for a single (S) or married (M) individual.
- Factor two is the number of personal exemptions.
- Factor three is the dollar amount of any additional annual withholding tax to be deducted.
- Factor four is not applicable to the S1 deduction computation method.
To bypass the tax table calculation and withhold a specific dollar amount for a particular employee, enter "-1" in Factor two of the FWT deduction code in the employee's master record. Enter the actual dollar amount to be withheld per pay period into Factor three.
Note: When setting up the deduction codes and factors for a particular employee, the deduction code for the Federal Withholding Tax MUST be the first deduction code in the employee's master record in the Employee file.
S2 Method
This deduction computation method calculates the deduction as a fixed percentage of the gross pay up to a maximum deducted dollar amount. The particular percentage rate and maximum deduction amount to be used for each individual employee are found in that employee's master file record.
- Factor one in the employee record indicates the frequency for this deduction.
- Factor two is the percentage rate to be used to calculate this deduction.
- Factor three is the maximum dollar amount per year to be deducted.
- Factor four is not applicable to the S2 deduction computation method.
S3 Method
This deduction computation method deducts a fixed dollar amount up to a maximum deduction dollar amount per year. The individual factors for each employee are identified in the employee's master file record.
- Factor one is the frequency of the deduction.
- Factor two is the dollar amount to be deducted each pay frequency.
- Factor three is the maximum dollar amount to be deducted this year.
- Factor four is not applicable to the S3 deduction computation method.
S4 Method
This deduction computation method is used for FICA (Social Security and Medicare) tax deductions. The deduction amount is calculated as a fixed percentage of the gross taxable pay up to a maximum dollar amount of gross pay that is subject to this taxation.
This deduction method does not use the Factors from the employee master record. The FICA percentage amount and annual dollar amount subject to taxation are defined in the Master Company Controls in the Maintenance Toolbox.
S5 Method
This deduction computation method is used for union dues or certain state tax deductions which do not require a tax table.
- Factor one specifies the frequency of the deduction.
- Factor two is the percentage of gross pay to be deducted.
- Factor three specifies the maximum amount per pay period (not Y-T-D) to be deducted.
- Factor four is not applicable to the S5 deduction computation method.
S6 Method
This deduction computation method computes a State Withholding Tax based on an FWT-like tax table. FWT gross earnings may be adjusted to determine the taxable earnings. Adjustments include a personal exemptions allowance and a zero bracket earnings amount that is exempt from taxation. A tax credit amount may also be included to arrive at the final tax deduction amount.
A deduction code which uses this computation method must contain an annual tax table and an annual exemption amount for each personal exemption.
This tax deduction amount is computed in three steps as follows:
- Determine the annual taxable earnings. Annual taxable earnings are the annual FWT gross earnings less the annual personal exemptions allowance less the annual zero bracket amount, where:
- Annual FWT gross earnings are the wages for this pay period that are subject to Federal Withholding Tax multiplied by the number of pay periods in a year.
- Annual personal exemptions allowance is the annual exemption amount (stored in the deduction code record) multiplied by the number of personal exemptions for this employee (Factor two in the employee's master record).
- Annual zero bracket amount is the dollar amount per year for this particular employee that is not subject to this taxation (Factor three in the employee's master record). This amount may vary from employee to employee.
- Determine the annual gross amount. Using the employee's annual taxable earnings (from step one), the annual gross tax amount is calculated from an annual FWT-like tax table in the same manner as an S1 type of deduction (see S1 Method above). The employee's marital status is stored in Factor one of the employee master record. The tax table in a deduction code which uses the S6 deduction computation method must be an annual table.
- Determine the annual net tax amount. The annual net tax amount to be withheld is the annual gross tax amount less any annual tax credit amount for this particular employee (Factor four in the employee's master record). The annual tax credit amount may vary from employee to employee. If the annual gross amount from the tax table is less than the annual tax credit amount, an amount of zero will be withheld.
The "Calculate Payroll" process then determines the amount of tax for this particular pay period.
The use of the factors from the employee's master record are as follows:
- Factor one indicates whether the tax is computed for a single (S) or married (M) individual.
- Factor two is the number of personal exemptions.
- Factor three is the zero bracket dollar amount of earnings per year that is exempt from taxation.
- Factor four is the tax credit amount per year.
S7 Method
This deduction computation method computes a State Withholding Tax in a manner similar to the S6 method described above. The S7 method makes an additional allowance for any Federal Withholding Tax amount when determining the taxable earnings.
A deduction code using the S7 method must contain an annual tax table and an annual exemption amount for each personal exemption.
This tax deduction is computed in three steps as described below:
- Determine the annual taxable earnings. Annual taxable earnings for the S7 method are the annual gross earnings less the personal exemptions allowance less the annual zero bracket amount less the annual Federal Withholding Tax for this annual gross earnings amount.
- Determine the annual gross tax amount. Using the employee's annual taxable earnings (from step one), the annual gross tax amount is calculated from an annual FWT-like tax table in the same manner as an S1 type of deduction (see S1 Method above). The employee's marital status is stored in Factor one of the employee master record. The tax table in a deduction code which uses the S7 deduction computation method must be an annual table.
- Determine the annual net tax amount. The annual net tax amount to be withheld is the annual gross tax amount less any annual tax credit amount for this particular employee (Factor four in the employee's master record). The annual tax credit amount may vary from employee to employee. If the annual gross tax amount from the tax table is less than the annual tax credit amount, an amount of zero will be withheld.
The "Calculate Payroll" process then determines the amount of tax for this particular pay period.
The use of factors from the employee's master record is as follows:
- Factor one indicates whether the tax is computed for a single (S) or a married (M) individual.
- Factor two is the number of personal exemptions.
- Factor three is the zero bracket dollar amount of earnings per year that is exempt from taxation.
- Factor four is the tax credit amount per year.
WARNING: A deduction code using the S7 deduction computation method will not calculate properly unless the deduction code which computes the Federal Withholding Tax is listed FIRST in the employee's master record.
S8 Method
This deduction computation method computes a State Withholding Tax that is a percentage of the Federal Withholding Tax amount on this check.
The percentage to be used is specified by setting up a single line tax table in the deduction code which uses this deduction computation method. For example, to withhold 15 percent of the Federal Withholding Tax amount enter the following table in the deduction code:
Over But Not Over Base Amt % to Deduct
0.00 9,999,999.99 0.00 15.000
A deduction using the S8 computation method does not use factors from the employee's master file record.
WARNING: A deduction code using the S8 deduction computation method will not calculate properly unless the deduction code which computes the Federal Withholding Tax is listed FIRST in the employee's master record.
S9 Method
The S9 State Withholding Tax deduction method takes a percentage of an employee's pay after adjustments based on FICA tax paid, number of exemptions, pay frequency, and marital status. An example of an SWT deduction code tax table for S9 is shown below:
But Base % to
Table Over Not Over Amount Deduct
----- ----- -------- ------ ------
(weekly, 1 ex) W1 13.50 13.50 29.00 .050
(weekly, 2+ exs) W2 13.50 13.50 34.50 .050
(semi-monthly, 1 ex) S1 29.00 29.00 63.00 .050
(semi-monthly, 2+ exs) S2 29.00 29.00 75.00 .050
(monthly, 1 ex) M1 58.00 58.00 125.00 .050
(monthly, 2+ exs) M2 58.00 58.00 150.00 .050
The SWT deduction code tax table contains two lines for each possible pay frequency. The first line for each pay frequency contains data for employees with one exemption (1 ex). The second line contains data for employees with two or more exemptions (2+ exs). The "Over-But Not Over" columns are the same and contain the Exemptions Multiplier. The "Base Amt" column contains the Additional Amount. The "% to Deduct" column contains the tax percent.
The use of factors from the employee's master record is as follows:
- Factor one - not used
- Factor two - number of exemptions
- Factor three - maximum FICA adjustment
- Factor four - not used
The calculation is performed as follows:
- FICA adjustment. The FICA tax (up to the maximum FICA adjustment) is subtracted from the gross pay. Call the result Net1.
- The appropriate line of the SWT deduction code tax table is used based on the pay frequency and number of exemptions.
- The number of exemptions is multiplied times the Exemptions Multiplier and subtracted from Net1. Call this number Net2.
- The Additional Amount is subtracted from Net2. Call this number Net3.
- The "% to Deduct" is multiplied times Net3. The result is the SWT amount.
WARNING: The order in which deduction codes appear in the Employee record is very important. The Federal Withholding (FWT) deduction code must be first and the Social Security deduction code must be second, while the Medicare is third. The SWT code may appear anywhere after these three. The S9 SWT calculation method will not work correctly if this order is not followed for each employee.
S10 Method
This method is the same as the S6 method with one major difference: the exemption amount is taken AFTER the annual tax amount is calculated.
Setting Up an Employee's Earnings Codes
An employee's earnings code is identified in the employee's master file record. This code used by the Auto Create Time Card function when preparing a paycheck for this employee. Multiple earnings codes may be included on an employee's check by entering additional codes in the Enter Time Cards function. This capability may be used to include additional earnings such as automobile allowance or for splitting an employee's time into regular, overtime, vacation and/or sick pay. A unique Earnings Code record must exist for each of the different earnings categories.
Setting Up an Employee's Deduction Codes
Standard deductions (those occurring on a periodic basis) are identified in each employee's master record in the Employee file by their code. Associated with each of these deductions are the individual factors to be used in calculating the deduction amount for this particular employee.
For deductions other than Federal/State Withholding Tax, Social Security/Medicare, factor one specifies the periodic frequency at which this deduction will occur for this employee. When the "Calculate Payroll" function is performed, the operator specifies the pay period as being weekly, bi-weekly, semi-monthly, monthly, etc. All deductions which have a frequency matching the specified pay period will be computed and deducted; all those with other frequencies will be omitted from this paycheck.
To set up a deduction for an employee, enter the deduction code into the employee's master record. Include the individual factors to be used when calculating this deduction for this employee.
Important: The deduction code for the Federal Withholding Tax deduction MUST be the FIRST deduction code entered in the employee's master record. It is good practice to enter the Social Security and Medicare deduction codes as the second and third deduction codes in the employee's master record. Other deduction codes may then be entered in any order desired.
The following table summarizes the use and meaning of the factors associated with each type of deduction computation method.
Cancelling a Deduction
To cancel an existing deduction code during the year, replace the Factor one entry with "X". This process causes the deduction to be ignored during payroll calculations while preserving any previous history information.
The employee's master record contains deduction history information and calculation parameters. Deduction codes cannot be deleted from an employee's record once this employee has received a paycheck. Deleting a deduction code is possible only after year-end processing is completed and all annual totals have been cleared (zeroed).
Withholding Taxes and Liabilities
The deduction codes for Social Security, Medicare, and FWT are identified in the Master Company Controls (see Maintenance Toolbox) along with Social Security and Medicare percentages and maximum subjectable dollar amounts. The federal withholding tax table is contained in the FWT deduction code record itself; it is maintained through the Set Up Deduction Codes function.
The actual amount to be deducted for an individual employee is based upon the tax table, along with individual factors contained in each employee's master record in the Employee file. See the "S1 Method" of deduction computation for complete information on setting up the Federal Withholding tax deduction code record.
The names of the deduction code records for State and Other State and Local withholding taxes are identified in the Master Company Controls (see Maintenance Toolbox) and described in the Deduction and Earning Codes file. Tax computation methods may be any of the ten methods described, including FWT-like tax table methods.
Federal and State Unemployment Insurance (FUTA and SUI) liabilities are calculated from information in the Master Company Controls (see Maintenance Toolbox), and the total liabilities are printed on the quarterly report.
Supplemental earnings have Federal Withholding Tax calculated at the fixed percentage rate specified in the Master Company Controls (see Maintenance Toolbox).
The General Ledger Distributions
The general ledger distribution account for each unique earnings or deduction code is identified in the Deduction and Earnings Code records. The general ledger account numbers for the payroll cash account and for Federal and State Unemployment Insurance are identified in the Master Company Controls (see Maintenance Toolbox).
The payroll programs create summary general ledger journal entries for the payroll processes; this summary data is collected in a "holding" file for later transfer to the Trial Balance. You may transfer this data automatically via the "Integrate Distributions" function on the Accountant's Page.
The Paycheck Process
A "payroll cycle" is defined as the time period between the dates payroll checks are printed; a payroll cycle begins the day after a paycheck date and goes through the next paycheck date. Note that the pay period for time cards does not have to coincide with the payroll cycle dates; the paycheck date may be on or after the pay period ending date.
The paycheck process consists of three steps: creating time cards, calculating the earnings and deductions, and printing the paychecks.
There will be one paycheck printed for each time card in the Time Card file. The Time Card file may contain more than one time card for an employee. A 'sequence' number differentiates multiple time cards for an employee.
Time card hours and the corresponding Earning codes are entered either manually through the Enter Time Card screen or through the Auto Create Time Card function, which enters standard hours and earnings codes based on information in the Employee file. A combination of these two methods may also be used; e.g., enter salaried employees automatically and enter hourly employees via manual time cards.
Temporary earning and deduction codes (one-time or irregularly occurring) are entered manually through the Enter Time Card screen prior to performing the 'Calculate Payroll' function.
Temporary earning or deduction codes may be added to automatically created time cards by the 'Enter & Edit' function within the Time Cards function.
Regular (periodic) deductions are computed automatically by the 'Calculate Payroll' function using information in the Employee file.
The 'Calculate Payroll' function then uses the combination of all earnings and deduction codes in the Time Card file and in the Employee file to calculate the gross pay, withholding taxes, deduction amounts, and net pay.
After the Calculate Payroll function has been performed and the Pre-Checkwriting report verified for accuracy, the Print Payroll Checks function is performed. This function causes a series of automatic steps:
- Print payroll checks
- Post the data to the Payroll history files
- Print the Payroll Register and Payroll Check Register
- Print the Tax Code Totals Report
Pay Period Frequencies
The pay period frequency for each employee is specified in the Employee file. The normal hours of the pay period is also defined per employee in the Employee file. If the 'Normal Hours' field in the Employee record is blank, the default number of hours in each of these pay frequencies are shown below.
D - Daily 8 hrs.
W - Weekly 40 hrs.
B - Bi-weekly 80 hrs.
S - Semi-monthly 86.67 hrs.
M - Monthly 173.33 hrs.
Q - Quarterly 520 hrs.
Y - Yearly 2080 hrs.
Creating Time Cards
Time cards in the Time Card file are created either individually by the Enter Time Cards function or by the Auto Create Time Cards function.
The 'Auto Create' function first prompts the operator for the pay frequency(s) to be included in this paycheck run. Multiple pay frequencies may be entered to produce one combined payroll run; e.g. by responding "WSM" the operator requests paying weekly, semi-monthly, and monthly employees in the same payroll run. The 'Auto Create' function then creates time cards for each employee in the Employee file who has one of these three pay frequencies.
The individual time card creation process is typically used when employees are paid irregularly or have unusual earnings and/or deductions.
Time cards may be modified by the operator regardless of whether they were created automatically or individually. Modifications may include the following changes:
- entering additional irregular earnings and/or deductions
- changing the normal general ledger distribution accounts for earnings and/or deductions
- altering the standard earnings and/or deductions generated by the automatic creation process
- adding/changing job cost distribution information (to be used with the optional Job Cost Tracking Add-on Module from Appgen)
Manual Checks
The MyBooks Payroll system accommodates the entry of information for manually written checks. This check information is stored in the payroll history files to maintain accurate earnings data for monthly, quarterly, and yearly reports.
On initial setup of the payroll data files, manual checks are used to enter the year-to-date payroll history information.
Multiple earnings codes may be included on a manual check to record different types of earnings (regular pay, vacation pay, holiday pay, etc.). To distribute earnings to a specific general ledger account the operator may override the normal general ledger distribution account for any earnings code.
Caution: For each withholding tax deduction you must manually compute the amount of gross pay of this check that is "subject to" that tax. These "subject to" amounts are not automatically computed nor are they verified upon entry. They must be entered correctly to keep the payroll records accurate for the remainder of the year. You must also automatically verify whether other deductions will exceed the per period or per year maximum deduction amounts.
Void Checks
To correct an erroneous check which has been printed and distributed, use the 'Void Check' function to reverse the original check issued. You enter the cash account, check number to void, and the effective date of the voiding. Then enter a check into 'Manual Checks' with the correct amounts.
Employee Termination
The Auto Create Time Cards function creates time cards from information in the Employee file. To prevent the generation of time cards for terminated employees, the termination date in the employee's record MUST be filled in. This item should be blank prior to termination.
In order to delete (remove) a terminated employee from the payroll system, the termination date must be at least 366 days prior to the current system date. This ensures that all necessary payroll reports and forms have been completed for this employee.
Payroll: Reports & Lists
Employee Payroll Recap
A listing of each employee's payroll history (M-T-D, Q-T-D, Y-T-D) of earnings and deductions arranged by employee number. A complete list of each employee's standard earning and deduction codes and their factors is included.
Employee Payroll History
A detailed list of all checks with earning and deduction amounts for the selected employees and pay periods.
Employee Review
Data for employee performance review is contained on this report. Operator may select employee codes and date ranges for this report.
Worker's Compensation
This report calculates the base salaries total for determination of Workers' Compensation insurance rates.
Quarterly Report
The Quarterly Report includes information for the completion of Form 941, as well as Federal and State Unemployment Insurance contributions and state tax withholding information.
Check Register
This is a numerically ordered list of checks by general ledger account number.
Employee List
This is a simple list of your employees along with all the information you entered using the Set Up Employees function.
Deduction Codes List
This is a simple list of your deduction codes along with all the information you entered using the Set Up Deduction Codes function.
Earning Codes List
This is a simple list of your earning codes along with all the information you entered using the Set Up Earning Codes function.
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