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Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

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8–6. Include Commission Payments in Payroll Payments

If a company has a significant number of sales personnel, the chore of issuing commission payments to them can be a significant one. The taxes must be compiled for each check and deducted from the gross pay, the checks must be cut or a wire transfer made, and, for those employees who are out of town, there may be other special arrangements to get the money to them. Depending on the number of checks, this can interfere with the smooth functioning of the accounting department.

A simple but effective way to avoid this problem is to roll commission payments into the regular payroll processing system. By doing so, the payroll calculation chore is completely eliminated, once the gross commission amounts are approved and sent to the payroll staff for processing. The system will calculate taxes automatically, issue checks or direct deposits, or mail to employees, depending on the distribution method the regular payroll system uses. This completely eliminates a major chore.

There are two problems with this best practice. First, the commission payment date may not coincide with the payroll processing date, which necessitates a change in the commission payment date. For example, if the commission is always paid on the fifteenth day of the month, but the payroll is on a biweekly schedule, the actual pay date will certainly not fall on the fifteenth day of every month. To fix this issue, the commission payment date in the example could be ...

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