Page 193 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
through ongoing deductions from employee paychecks, and are usually
capped at a specified percentage of employee pay, such as 15 percent.
Example. The Humble Pie Company offers its stock to employees
at a 20 percent discount from the market price. Deductions are made

from employee paychecks to cover the cost of shares. Sally Reed has
chosen to have $10 deducted from her pay on an ongoing basis in order
to buy this stock. During the first pay period, company stock is publicly
traded at $17.50, so the price at which Ms. Reed can buy it from the
company is $14, or ($17.50 market price x (1–20%)). However, the
deduction is not sufficient to purchase a share,so the company places the
funds in a holding account until the next pay period, when another $10

brings the total available funds to $20. The company then deposits one
share of stock in the account of Ms. Reed and transfers $14 to its equi-
ty account, leaving $6 on hand for the next stock purchase.

Workers’ Compensation Benefits
Businesses are required by law to obtain workers’ compensation insur-
ance,which provides their employees with wage compensation if they are
injured on the job.This insurance may be provided by a state-sponsored

fund or by a private insurance entity. The key issue from the payroll
perspective is in calculating the cost of the workers’ compensation
insurance. This calculation occurs once a year, when the insurer sends
a form to the company asking it to list the general category of work
performed by the various groups of employees (such as clerical, sales,
or manufacturing), as well as the amount of payroll attributable to each
category. It behooves the person filling out the form to shift as many

employees as possible out of high-risk manufacturing positions, since
the insurance cost of these positions is much higher than for clerical
positions. It’s also important to reduce the amount of payroll attributable
to each group by any expense reimbursements or nonwage benefits that

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