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PAYROLL ACCOUNTING - Chapter 41: Payments To Employees

The document outlines payroll accounting, detailing employee payments through wages and salaries, and the source documents required for payroll processing. It explains gross pay versus net pay, methods of calculating pay, and the types of deductions from pay, including statutory and non-statutory deductions. Additionally, it provides examples of payroll calculations and mentions accounting software used for payroll management.

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50 views4 pages

PAYROLL ACCOUNTING - Chapter 41: Payments To Employees

The document outlines payroll accounting, detailing employee payments through wages and salaries, and the source documents required for payroll processing. It explains gross pay versus net pay, methods of calculating pay, and the types of deductions from pay, including statutory and non-statutory deductions. Additionally, it provides examples of payroll calculations and mentions accounting software used for payroll management.

Uploaded by

mohammedasiyah2008
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PAYROLL ACCOUNTING -chapter 41

Payroll is the list of employees that specifies the wage or salary that each employee
receives.

PAYMENTS TO EMPLOYEES

Payments may be made by wages or salaries. Wages are usually paid weekly often in
cash and to manual workers.

Salaries are paid monthly by cheque or directly to the employee bank account by
means of a standing order.

Pay may also be referred to as remuneration which simply means to reward or pay for
work carried out.

SOURCE DOCUMENTS OF THE PAYROLL

Payroll source documents are those documents which are required for the generation of
salary/wage of an employee. It helps in providing evidence to the organization as well
as the employee about their salary/wage.

1. Time card/ electronic clock-in card- this records time of arrival and time of departure.
It is used to prepare the time sheets of the employees.

2. Time register/ book- this is a book where the employee sign in time of arrival and sign
out time of departure.

3. Payroll register/ employee earning records- this is a hard copy or electronic


spreadsheet listing the employee’s payroll information for a specific payroll period.

4. Pay slip- this is a document given to the employee at the end of the week or month
showing the amount of money earned and the deduction taken out to arrive at net pay.

GROSS PAY AND NET PAY

Gross pay is the amount of wage or salary due to the employee before any deductions
are made.

Net pay is the amount of wage or salary received by the employee after all deductions
have been made.

METHODS OF CALCULATING PAY

1. Fixed salary or wage- This represents an agreed annual salary or weekly wage.
2. Time rate- This method shows a fixed basic rate per hour multiply by the number of
hours worked. Example: Basic rate per hr. =$18 per hr. Number of hours worked =40
hrs. per week. Therefore Gross pay= 40hrs.x $18= $720.

Overtime - This is extra hours worked beyond normal hours.

Overtime is usually paid at a higher rate than normal time. Overtime can be:

Time and a quarter- 1 ¼

Time and a half – 1 ½

Double time – 2

3. Piece work – With this method payment is based on the number of units produced or
operations completed. The employee is paid only for work completed. Piece work /rate
payment is an incentive to encourage workers to work faster without suffering quality
over quantity.

4. Commission- This is a percentage based on the amount of sales made by the


employee. Commission may be paid in addition to a basic salary /wage or instead of a
salary/wage.

DEDUCTIONS FROM PAY

1. Statutory deductions- these are deductions that are required by the Government or
by law of a country. These deductions must be paid once the person is earning a wage
or salary. These include- income tax- pay as you earn (PAYE), national insurance (NIS)
health surcharge etc.

2. Non- statutory deductions- these are deductions taken out at the request of the
employee. These include- trade union dues, credit union payments, pension, insurance
etc.

MAIN ACCOUNTING SOFTWARE USE FOR PAYROLL

These are Quick books, Peach tree accounting etc.

Calculation of Net Pay

Gross Pay – Normal hours. X rate + overtime hours. X rate

Less: Deductions- tax, Nis, Health surcharge, pension etc

= Net Pay
PASS PAPER QUESTION MAY/JUNE 2014 SENT AS A SEPERATE PICTURE. SEE
ANSWER BELOW.

a. Attendance register

Time sheets

b. Voluntary deductions- employees give specific instructions for amounts to be


deducted from salary to meet obligations. Example -credit union dues, loans payments.

c. Statutory deductions- are mandatory deductions by law and must be deducted and
paid to the relevant government agencies example income tax, national insurance.

c. Pet Plus

Payroll sheet for the week ended 26 April 2014

Employee Pay Normal Overtime Normal Overtime Gross Social pension


rate hrs hrs pay $ pay $ pay security
$
Sales 10 40 5 400 75 475 23.75 4.75
attendant
Cashier 120 5 0 600 0 600 30 6
TOTALS 1000 75 1075 53.75 10.75

Taxable Income tax Total deductions Net pay


income
446.50 44.65 73.15 401.85
564 56.40 92.40 507.60
1010.50 101.05 165.55 909.45

WORKINGS:

Normal pay Sales attendant- 40hrsx $10=$400

Cashier- 5 hrsx$120=$600

Overtime pay= Sales attendant-1.5 pay rate= 10+5=$15

5hrsx $15=$75
Deductions:

Social security= Sales attendant- 5%x 475=23.75

Cashier- 5%x600=30.00

Pension = Sales attendant-1%x 475=4.75

Cashier--1%x 600=6.00

Taxable income = Gross pay -deductions

Sales attendant-475-23.75-4.75=$446.50

Cashier--600-30-6=$564

Income tax = Sales attendant-10%x 446.50= 44.65

Cashier-10% x564= 56.40

Total deductions = Sales attendant- 23.75+4.75+44.65=$ 73.15

Cashier - 30.00+6.00+56.40= $92.40

Net pay= Gross pay- total deductions

Sales attendant- $475- $73.15= $401.85

Cashier- $600- $92.40= $507.60

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