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FA1 Chapter-8

This document discusses labor costs and remuneration methods. It explains different payment systems like wages, salaries, overtime, bonuses and commission. It also defines gross and net earnings. Gross wages include all earnings while net wages are payments after deductions for taxes. The document outlines approaches to calculating employee pay based on time, production units, or productivity. Finally, it provides steps for accounting for labor costs through various journal entries.

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ANH BÙI HOÀNG
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8 views

FA1 Chapter-8

This document discusses labor costs and remuneration methods. It explains different payment systems like wages, salaries, overtime, bonuses and commission. It also defines gross and net earnings. Gross wages include all earnings while net wages are payments after deductions for taxes. The document outlines approaches to calculating employee pay based on time, production units, or productivity. Finally, it provides steps for accounting for labor costs through various journal entries.

Uploaded by

ANH BÙI HOÀNG
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1

Chapter 8: tr lng

Labor costs and Remuneration


methods
2

What you will learn?


 Remuneration methods and systems

 Labor costs

 Gross and net earnings

 Accounting for labour costs


3

Remuneration methods and systems


ngày công
Wages and salaries department in large organizations is
responsible for calculating amounts owing, dealing with
employees who leave and with new joiners

The payments to each employee are the same every


week or month or depend on time records (clock cards),
production records, or some other type of calculation

Employees will receive a wage or salary slip showing


their pay and any deductions for tax

The amounts to be paid are passed to the accounting


department which will look after the cash transfers to
employees, the tax authorities and any other recipient
(pension funds)
4

Remuneration methods and systems


Payments to employees

Type of payments

Credit
Cash Cheques transfer to
bank account

Become much less common

Be labour intensive as envelopes had to


be filled with the correct cash for each
employee
Security issues because the cash
needed for a large workforce was very
significant and it is an attractive target
for robbery
Signing a register that wages had been
received to ensure that the right people
received the cash when wages were
handed out
5

Labor costs

Basic wage or salary

làm thêm
Overtime premiums

Bonuses

Origin of hoa
Commission (per sales made) hng
labor cost

Holiday pay

Sick pay

Payroll taxes

Paying wages and salaries under a ‘pay as you earn scheme’


means: da trên nhng gì làm ra

 The employer deducts the employees’ income tax from the


gross wage and pays that over directly to the tax authority
 The net amount after tax is paid to the employee
6

Labor costs
Approaches to employee remuneration

Method 1: A constant weekly or monthly amount


Labor cost = remuneration per period x number of periods

Method 2: An amount based on hours worked (basic plus


overtime)
Example: 52 hours are worked in a week. Basic week is 40
hours, the basic rate of wage = $10, and overtime is paid at
time and one half

Hours worked (1) Rate of wage (2) $ = (1) x (2)

Basic wage 52 $10 $520

Overtime
52 - 40 = 12 $10 x 50% = $5 $60
premium

Total wage $580


7

Labor costs
Approaches to employee remuneration

Method 3: An amount based on units produced


(piecework)
 Often have a guaranteed minimum amount of wage so as to
comply with minimum wage rate legislation
Example: Minimum pay/week = $250; Piece rate = $3/unit
 If 100 units are made in a week
=> The wage = $3 x 100 = $300
 If 80 units are made in a week
=> The wage = $250 (the piece rate amount = $3 x 80 = $240
< $250)

Method 4: An initial amount plus a bonus


 Full instructions would have to be supplied as to how to
calculate the amounts
 Example: The bonus could be part of a profit share
8

Labor costs
Approaches to employee remuneration
Method 5: An amount based on productivity
 There are many different types of bonus scheme and any
question have to set out the precise rules
Example:
Basic wage = $9/hour for 40 hours per week. Normal
production in that time = 120 units. Bonus = 50% of the time
saved on production paid at time and a third. What will be the
total wage in a week in which 150 units are made in 40
hours?
 Basic wage = $9 x 40 = $360
 Normal: 120 units take 40 hours
=> 150 units take 50 hours
 But actual 150 units took 40 hours => Hours saved = 10
hours
 Bonus = 50% x ($9 x10 + $9 x 10 x 1/3) = $60
 Total wage = Basic wage + Bonus = $360 + $60 = $420
9

Gross and net earnings

The total amount earned by the


Gross wages
employee bao gm c thu và net

The amount paid to the employee after


the employer makes deductions for
Net wages
income tax and certain statutory
amounts

Employees’ gross wages plus any


Total labor cost additional payroll taxes and pension
to employer contributions that the employer has to
bear
10

Accounting for labor costs

Step Entries

Step Dr Wages and Salaries account: gross wages


1 Cr Wages Control account: gross wages

Dr Wages and Salaries account: additional employer’s


Step
costs
2
Cr Wages Control account: additional employer’s costs

Dr Wages Control account: net wages


Step
Cr Cash: net wages
3
(payment of net wages to employee)

Dr Wages Control account: employee deductions


Step
Cr Cash: employee deductions
4
(payment of deductions to government)

Dr Wages Control account: other amounts due


Step
Cr Cash: other amounts due
5
(payment of other amounts to government)

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