For example, let us assume Friends Company, an Indianapolis-based company, manufactures industrial valves. It is engaged in interstate commerce and has an annual dollar volume of sales of $10,000,000. The company employs 1,000 people: 900 wage- and 100 salary-based employees. In 2009 the company paid a minimum wage of $ (in accordance with FLSA and state regulations). For work over 40 hours a week (. over 8 hours in any weekday), the company paid one-half times the regular rate. The company also paid twice the regular rate for work on weekends (Saturdays, Sundays) and holidays. Let us assume John Smith, an assembly-line mechanic, worked the following hours during the week of January 23, 2009: 1) 40 regular time hours; 2) 8 overtime hours; and 3) 8 weekend-holiday hours. Smith's wage would be calculated as follows:
Sometime the pay period crosses between two accounting periods, such as the end of the month. At the end of the first period, the accountant records the payroll expense and payroll liability for the portion of the payroll attributable to the first period. She takes the percentage of the pay period that applies to the first period and multiplies that amount by the total payroll amount. The payroll deductions and the employer’s payroll taxes are calculated based on the total payroll amount which applies to the first period. The accountant creates the same journal entries as she does to record the standard payroll liabilities using these amounts. When the next period starts, the accountant reverses the payroll liability accrual entry. This allows her to continue recording the payroll liability entries normally.