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CHAPTER 5
Compensation
After reading this chapter you will be able to
• Compute overtime pay earned under the provisions of a
piece-rate plan
• Complete and submit Form 8027 to the IRS, which sum-
marizes tip income reported by employees to the employer
• Know the paperwork to submit to the government follow-
ing the end of a calendar year
• Know the types of fringe benefits that must be recorded as
taxable income to employees
his chapter covers a multitude of issues surrounding employee
compensation, with a particular emphasis on the types of compen-
Tsation that are taxable income to employees. The chapter begins
with guidelines for determining whether an employer can designate
someone as an employee or contractor; next it offers guidelines for dif-
ferentiating between salaried and hourly employees. The chapter then
covers a number of general compensation-related topics, such as activities
for which wages must be paid, the standard workweek, and payments
made to temporary work agencies. The bulk of the chapter, however, is
devoted to a discussion of a variety of compensation types, as well as
business expenses that can be reported as gross income to employees for
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